For National Foster Care Month: The Tax Benefits of Becoming a Foster Parent

This post originally appeared on Forbes.

May is National Foster Care Month, a month set aside to acknowledge foster parents and other members of the community who help children and youth in foster care find permanent homes and connections.

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Image: Stocksnap.io/Leeroy

In 2014, there were more than 400,000 children and youth in foster care in the U.S.

Foster parents receive a monthly stipend from the state in which they live to help cover the costs of general care, food, clothing, and housing needs. The amount of the stipend depends upon the state in which the foster parent lives, but the stipend is usually not enough to take care of all of the needs that foster children have.

 Fortunately, there are a few tax breaks that foster parents can take advantage of to help defray the cost of providing this invaluable service.

Filing Status

Single foster parents can file as Head of Household if:

 The foster child may be claimed as the taxpayer’s dependent, and
  1. The taxpayer maintains a household that is the foster child’s principal residence for more than half the year.

Filing as Head of Household means more favorable tax rates and a higher standard deduction than single filers.

Dependency Exemption

A foster parent can claim an exemption for a foster child only if the foster child qualifies as a qualifying child or a qualifying relative.

When determining whether the foster parent provided more than half of the child’s support for the year, payments received from a state agency count toward the child’s total support but do not count as support provided by the foster parent.

If the child lived with the foster parents for more than six months and they meet the other requirements for the Earned Income Tax Credit (EITC), the foster child can count as a qualifying child for the EITC.

With the federal tax exemption for each dependent being $4,050, the child tax credit being $1,000 and the EITC worth up to $6,269 for three or more qualifying children in 2016, foster children can make a big difference in how much you have to pay in taxes.

In order to claim a child as a dependent, you must include his or her SocialSecurity Number on your tax return. Social Security Numbers are not always available to foster parents because of privacy concerns.

Foster Care Payments Are Not Income

Payments received for providing foster care in your home are not considered taxable income. Excluded payments include amounts received from a state or local government or from a qualified foster care placement agency.

Charitable Donations

Foster parents can deduct as a charitable contribution some of the costs of being a foster parent if a qualified organization designates the foster children they take into their home. Eligible expenses include unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child as well as expenses that mainly benefit the qualified organization.

Unreimbursed expenses the foster parent deducts as a charitable contribution count as part of the foster child’s total support, but not as part of the foster child’s total support.

To benefit from the charitable donation deduction, you’ll have to have enough total itemized deductions to exceed the standard deduction. For 2016, the standard deductions are $6,300 for Single, $12,600 for Married Filing Jointly, and $9,300 for Head of Household.

Foster parenting is not a money-making venture, but the tax benefits of becoming a foster parent make it possible for some families who otherwise wouldn’t have the resources to open their homes to a child that has nowhere else to go.

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