Tax information for foster parents
Did you know that as a foster family you may be eligible to claim the Earned Income Tax Credit (EITC), a refundable tax credit from the IRS worth up to $6,300 or more? The EITC is a federal and state tax credit for working families that earned less than $54,000 in 2017.
In 2002, Congress passed beneficial legislation that changed the definition of a foster child for purposes of determining a “qualifying child” for the Earned Income Tax Credit. A foster child is defined as:
“a child placed with you by an authorized placement agency, such as a licensed foster care agency, state agency or court.”
A foster child needs only to have lived with you for more than six months. You may claim a foster child for the EITC even if you’re unable to claim the child as a dependent. Foster care payments, either from the state or from an independent foster care agency, do not count as income when determining eligibility for the EITC.
If you have questions about your eligibility call the Internal Revenue Service toll free number, 1 (800) 829-1040.
You may also be eligible for free tax preparation in Colorado. Download an informational flyer that outlines what you need to qualify for free tax help, what to bring to a tax site, and how to access free online filing
For information about free tax sites near you, call 2-1-1 or visit TaxHelpCO.org to find a statewide list of all places providing free tax preparation.
Update Regarding 1099 Forms
Payments received from a state, political subdivision, or a qualified foster care placement agency for providing care to qualified foster individuals in the taxpayer’s home are not generally included as income. However, additional payments that are designated by the payer as compensation for providing for more than 10 qualified foster individuals under age 19, or 5 qualified foster individuals age 19 or older are considered to be difficulty-of-care payments and are taxable. If so, the taxpayer may receive Form 1099-MISC. These payments must be reported on a Schedule C-EZ or Schedule C. If you believe you received a 1099-MISC in error, contact the agency that sent the form to ask for a corrected form, showing $0 in non-employee compensation.