Tax Benefits of Being a Foster Parent

Becoming a foster parent is one of the most meaningful and generous decisions anyone can make. Beyond opening your home and heart to a child in need, many people are surprised to learn that foster parents may qualify for several tax benefits. These benefits are designed to support families who take on the responsibility of caring for a child through a foster care agency or state program.

If you’re a current or prospective foster parent, understanding these tax advantages can help you better manage your finances throughout the year.


Foster Care Payments May Be Tax-Free

Most foster parents receive a monthly stipend to help cover the cost of caring for the child. This payment—often called a reimbursement, stipend, or nontaxable foster care payment—is usually not considered taxable income by the IRS.

Why?

The IRS views these payments as reimbursements, not earnings. They are meant to help cover expenses such as:

  • Food
  • Clothing
  • Transportation
  • School supplies
  • Basic daily needs

As long as the child is placed through a state-approved foster agency or the state/local government, these payments typically do not need to be reported on your taxes.


You May Be Eligible for Child Tax Benefits—In Specific Situations

This is one of the biggest questions foster parents have:

“Can I claim a foster child on my taxes?”

The answer is: YES — but only if the child meets IRS qualifying criteria.

A foster child CAN qualify as a “Qualifying Child” if:

  • The placement was authorized by a government agency or court
  • The child lived with you for more than half the tax year (over 6 months)
  • The child is under 19 (or under 24 if a full-time student)
  • The child did not provide more than half of their own financial support

If those conditions are met, you may qualify for:

• The Child Tax Credit (CTC)

A credit of up to thousands of dollars, depending on your filing year and income.

• The Earned Income Tax Credit (EITC)

If you work and meet income requirements, a foster child can help you qualify for this major refundable credit.

• The Additional Child Tax Credit (ACTC)

If you qualify for CTC but don’t owe enough taxes to use the full credit, ACTC may refund the remaining balance.

Note:

If the child lived with you for less than half the year, you cannot claim them as a qualifying child—but you still may be able to qualify for other deductions.


You May Qualify for the “Child and Dependent Care Credit”

If you pay for childcare so you can:

  • Work
  • Look for work
  • Attend school

You may be eligible for the Child and Dependent Care Credit.

This includes:

  • Daycare
  • After-school programs
  • Babysitters
  • Summer day camps

This credit can offset a portion of childcare costs for foster children.


Some Itemized Deductions May Apply

If you keep detailed records, certain unreimbursed expenses related to the foster child may be deductible as charitable contributions if the placements were arranged through a qualifying nonprofit organization.

Examples include:

  • School supplies
  • Clothing
  • Transportation for visits
  • Extra educational materials

These deductions apply only if:

  • You itemize deductions
  • The expenses were not reimbursed
  • The foster care placement came through a tax-exempt agency

This applies less often, but it is still a useful benefit for some families.


You May Qualify for Head of Household Filing Status

If you are a single foster parent, you may qualify for Head of Household (HOH) status, which reduces your taxable income.

To qualify for HOH, you must:

  • Be unmarried (or considered unmarried)
  • Have paid more than half the cost of maintaining your home
  • Have a qualifying foster child living with you more than half the year

HOH filing status can significantly lower your tax bill.


Mileage and Transportation Deductions (In Certain Cases)

Under specific circumstances, foster parents may deduct miles driven for foster care responsibilities, especially if the placement is through a qualifying organization.

Examples of deductible mileage:

  • Driving to therapy appointments
  • Medical visits
  • Meetings with social workers
  • Court appearances
  • School-related travel

This is particularly useful for foster parents with children who require frequent services.


You May Qualify for State-Level Tax Benefits

Depending on where you live, your state may offer additional credits or deductions for foster parents. These vary widely, so it’s important to check your state's tax rules.

Many states offer:

  • Extra deductions
  • Childcare credits
  • Income exclusions
  • Foster parent grants

Some states provide more support than others.


Foster Care Does NOT Affect Your Eligibility for Food Assistance or Medi-Cal/Medicaid

While not a tax benefit, this is very important:

  • Foster care payments generally do not count as income
  • They usually do not affect your eligibility for programs like SNAP (food stamps) or Medicaid

This is financially helpful for many families.