(Posted 2020 March; Updated 2024 January)
Tax Deductions for Foster and Adoptive Parents
Did you know that adoptive parents and foster parents may be eligible for some tax credits for the children in their homes? The Department of Family Services offers some general tax information for your awareness. We hope that you find it helpful, but since we do not employ tax experts, this information should not be solely relied upon for income tax preparation decisions.
Adoption Tax Credit
- For adoptions finalized in 2023, the tax credit is $15,950 per child.
- It is a one-time credit for each child and should be claimed when you file taxes for 2023.
- It is not a refundable credit. You only benefit if you have federal income tax liability.
- How much, if any, of the adoption tax credit you will use depends on your federal income tax liability in 2023 (and the next five years).
- To claim the adoption tax credit, you will need to complete a 2023 version of IRS Form 8839 and submit it with your Form 1040 when you file your 2023 taxes in 2024.
For those with higher incomes, the credit phases out. For 2023, families with a modified adjusted gross income below $239,230 can claim full credit. Those with incomes from $239,230 to $279,230 can claim partial credit, and those with incomes above $279,230 cannot claim the credit.
When a child adopted from US foster care receives adoption assistance (also known as adoption subsidy) it is considered a special needs adoption for the purposes of the adoption tax credit, even if the child does not have a disability. If you completed a special needs adoption from foster care (as defined above), You can claim the federal adoption tax credit even if you had no adoption expenses.
For more information on topics such as qualifying adoption expenses, contact the North American Council on Adoptable Children at 651-644-3036, email TaxCredit@nacac.org or visit NACAC or IRS.
Claiming a Child in Foster Care on Your Taxes
According to the Internal Revenue Service Publication 501, Dependents, Standard Deduction and Filing Information, foster parents may be eligible to claim each child in foster care they care for during the tax year who is eligible to be considered a Qualifying Child for one of the following tax benefits:
- The child tax credit or credit for other dependents.
- Head of household filing status.
- The credit for child and dependent care expenses.
- The exclusion from income for dependent care benefits.
- The earned income credit.
Certain tests apply: The child must have a valid Social Security number that is issued before the due date of the tax return (including extensions) and must pass all of the following tests to be a qualifying child to claim as a dependent:
Relationship: The child must have been placed in your home by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction for you to foster.
Age: The child must be under age 19 at the end of the year, a student under age 24 at the end of the year or permanently and totally disabled at any time during the year, regardless of age.
Residency: The child must have lived with you for more than half of the year during the specific tax period (Jan. 1-Dec. 31).
Support: The child cannot have provided more than half of his or her own support for the year. Note: The foster care board rate you receive is considered support from the state - not from the child.
Joint Return: The child cannot file a joint return for the tax year unless the child and the child's spouse did not have a separate filing requirement and filed the joint return only to claim a refund.
IMPORTANT: Only one person can claim the same child. If a child qualifies for more than one person and one of the persons is a parent or parents, the non-parent can claim the child only if their adjusted gross income (AGI) is higher than the parent(s). If the child qualifies another relative and the parent AGI rules do not apply, the taxpayers choose. If more than one person claims the same child, IRS applies the tiebreaker rules. Read more about Qualifying Child of More Than One Person.
If you have specific questions regarding the preparation of your income tax return, please contact the IRS or 800-829-1040. You can also discuss the matter with a tax preparation expert.
This article posting is part of the Foster Family News monthly newsletter designed to keep foster parents informed about all the new and notable happenings in Fairfax County.
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