Understanding Foster Child Tax Benefits: Eligibility and Claiming Procedures

Are you considering fostering a child or are you already a foster parent? One of the significant benefits of fostering involves tax benefits, though it's crucial to understand the specific rules and requirements. This guide will help you navigate through the process and ensure you comply with the Internal Revenue Service (IRS) guidelines.

Eligibility for Tax Benefits

For foster parents to claim a foster child on their taxes, several conditions must be met. The IRS allows a child to be claimed as a dependent if they have lived with the foster family for more than six months in the tax year. However, the bio parents can still try to claim them, even if they only had custody for a few days.

Legal and Physical Custody

According to the IRS, the person who has full legal and physical custody of a child for more than half the year can claim the child. If multiple families have had custody, the family with the longest legal custody can claim the child. For example, if the biological parents had the child for seven months and the foster parents for five months, the biological parents can claim the child.

Divorce and Custody Arrangements

In cases of divorce, the parent who had the child for a longer duration can claim them unless the other parent has explicitly given up their right to claim the child. For instance, if a divorced mother had the child for four months and the father had him for eight months, the father can claim the child. However, if the mother had legal custody for six months, the IRS might take the actual number of days into account.

Foreign Foster Children

For foreign children, the situation can be more complex. If a foreign child stayed in a foster home or orphanage for ten months and was then adopted by an American family for the remaining two months, the adoptive family can claim the child. This is because the foreign foster home or orphanage does not file US taxes and, therefore, cannot claim the child. Even if the child returns home on the last day of the year, the adoptive family can still treat the child as if he or she was home all year.

Claiming Foster Children on Taxes

Despite meeting the six-month requirement, the biological parents can still attempt to claim the foster child on their taxes. In such cases, foster parents might face a bit of a challenge, but it does not usually create a significant problem.

Financial Support and Additional Expenses

Foster parents are typically ineligible to claim the child for tax exemptions. Instead, state or county funds provide a subsidy to offset some of the expenses incurred while caring for the child. Additionally, foster parents can claim certain additional expenses, including childcare costs, as separate deductions.

Conclusion

Understanding the rules and procedures surrounding foster child tax benefits is crucial for both foster parents and biological parents. While the biological parents generally take precedence in claiming the child, ensuring you meet the six-month requirement and understand the legal and physical custody rules can help foster parents secure the benefits they deserve.

For more detailed guidance and personal advice, consult a tax professional or refer to the IRS guidelines.