Foster Care Expenses: Tax Deductions and Credits

Foster parents can claim the same major tax credits available to biological and adoptive parents — including the Child Tax Credit and the Earned Income Tax Credit — and can deduct unreimbursed out-of-pocket costs of caring for a foster child as charitable contributions. On top of that, foster care stipends from the state or a licensed agency are generally not taxable at all. The catch is that every one of these foster care tax deductions and credits depends on the child meeting the IRS definition of a qualifying foster child, and the rules are stricter than many families assume.

Does Your Foster Child Qualify as a Dependent

Before any credit or deduction is on the table, the child has to pass five tests. Miss one and the rest of this article does not apply to that child.

Relationship. The child must be placed in your home by an authorized placement agency or by a court order. Authorized agencies include state or local government agencies, Indian tribal governments, and tax-exempt organizations licensed by a state.
Residency. The child must live with you for more than half the tax year. If placement happened partway through the year, the IRS measures from the placement date, so a child placed in July who stays through December still qualifies.¹
Age. Under 19 at year-end, or under 24 if a full-time student for at least five months of the year. A child who is permanently and totally disabled qualifies at any age.²
Support. The child cannot have provided more than half of their own financial support during the year. Foster care payments from the placement agency count as support provided by the agency, not by you or the child.¹
Joint return. The child cannot file a joint return for the year unless it is only to claim a refund of withheld taxes.²

Only one taxpayer can claim a given qualifying child. If two adults in different households could each claim the same foster child, the IRS tiebreaker generally favors the person the child lived with longest during the year. When you share a household with another adult who could also claim the child, agree on who claims before either return is filed.

Are Foster Care Payments Taxable

Usually not. Payments you receive from a state, county, or qualified placement agency for the care of a foster child in your home are excluded from gross income under Section 131 of the Internal Revenue Code. You do not report them, and they do not count toward your income for other tax purposes.³

Difficulty-of-care payments — extra compensation the state provides because the child has a physical, mental, or emotional condition requiring additional care — are also excluded, as long as the care is provided in your home.³

Two practical consequences follow. A dollar of foster care stipend is worth more than a dollar of wages, because none of it goes to federal income tax. And because the payments stay out of your adjusted gross income, they cannot push you above the income limits for the EITC or the Child Tax Credit.

If you receive payments that fall outside Section 131 — for instance, from an organization that is not operating under a state foster care program — those are taxable. Report them where the payer reports them: W-2 amounts on the wage line, 1099-NEC or 1099-MISC amounts on Schedule C if you are running a care business, otherwise on the “other income” line.⁴

Credits That Deliver the Most Money

Credits reduce your tax bill dollar-for-dollar, which makes them far more valuable than a deduction of the same size. You do not need to itemize to claim any of the credits below.

Child Tax Credit

Worth up to $2,200 per qualifying foster child for the 2025 tax year. The child must be under 17 at year-end. You get the full credit if your income is $200,000 or less, or $400,000 or less if married filing jointly; the credit phases out above those thresholds.⁵

If your tax liability is too low to absorb the full credit, up to $1,700 per child can come back to you as a refund through the Additional Child Tax Credit — meaning you can receive money even if you owe no federal income tax.⁵ Both figures now adjust annually for inflation.

Earned Income Tax Credit

The EITC is fully refundable and aimed at low-to-moderate-income workers. Adding a qualifying foster child can dramatically increase the credit or make you eligible when you otherwise would not be. Maximum amounts and income limits for the 2025 tax year:⁶

One qualifying child: up to $4,328 (income limit $50,434 single, $57,554 married filing jointly).
Two qualifying children: up to $7,152 (income limit $57,310 single, $64,430 married filing jointly).
Three or more qualifying children: up to $8,046 (income limit $61,555 single, $68,675 married filing jointly).

Because Section 131 foster care payments are excluded from AGI and are not earned income, they will not push you over these limits. The child must have a valid Social Security number to be counted for the EITC.⁷

Child and Dependent Care Credit

If you pay for daycare, after-school care, or a babysitter so you can work or look for work, this credit covers a percentage of those costs. The foster child must be under 13, or any age if disabled. Claim it on Form 2441.⁸

Head of Household Filing Status

Not a credit, but often worth more than one. An unmarried foster parent who pays more than half the cost of maintaining the home where the qualifying foster child lives can file as head of household. That raises the 2026 standard deduction from $16,100 to $24,150, an $8,050 increase in tax-free income, and lowers the tax brackets you fall into.⁹ The child has to meet the more-than-half-the-year residency requirement.

Deducting Unreimbursed Care Expenses

Money you spend out of pocket on the foster child — clothing, school supplies, medical co-pays, food beyond what the stipend covers, transportation — is deductible as a charitable contribution. The rationale is that you are volunteering for a qualified organization (the placement agency), and these are out-of-pocket costs of that service.¹⁰

Two conditions apply. The expenses have to be unreimbursed costs of feeding, clothing, and caring for the child, and they have to be incurred primarily to benefit the qualified organization rather than for a personal purpose. Foster parents who are simultaneously pursuing adoption of the same child should know that the IRS may disallow the deduction if it concludes the primary motivation was to adopt.

You Have to Itemize

This deduction only helps you if you itemize on Schedule A. For 2026, the standard deduction is $16,100 for single filers, $24,150 for head of household, and $32,200 for married couples filing jointly.¹¹ Unless your total itemized deductions — mortgage interest, state and local taxes, charitable contributions including foster expenses, and the rest — exceed those figures, the standard deduction gives you a better result and the foster expense deduction produces nothing. For most foster families, the credits above matter far more than this deduction.

Mileage for the Child’s Care

Driving related to the child — trips to school, medical appointments, extracurricular activities — is deductible either at actual gas and oil cost or at the IRS standard charitable mileage rate of 14 cents per mile. General maintenance, depreciation, insurance, and tires are not deductible. Parking fees and tolls are deductible either way.¹⁰ The 14-cent rate is set by statute and has not changed in more than a decade, so do not confuse it with the higher business mileage rate.¹²

Getting the Child’s Social Security Number

You need the child’s SSN to claim any of these credits. The number exists — it was typically assigned at birth — but foster parents often do not receive it automatically from the placing agency.

Ask your caseworker or agency in writing, citing your need to claim federal tax credits. Many states require the agency to release the SSN to caregivers on request. If the agency will not or cannot provide it, visit a Social Security Administration office with your photo ID, the foster placement agreement, and any identifying documents for the child (birth certificate, Medicaid card) to request the number.

The Adoption Taxpayer Identification Number applied for on Form W-7A is a separate track only for pending domestic adoptions where the SSN cannot be obtained. If no adoption is pending, that form is not your path.¹³

Records to Keep

If the IRS questions any of these benefits, the burden of proof is on you. A few documents cover most of it.

The official placement agreement from the agency or court proves both the relationship test and, with the placement date, the residency test.¹

For the charitable deduction, keep receipts for every unreimbursed expense — clothing, school fees, medical co-pays, food beyond what the stipend covered — and a contemporaneous mileage log recording the date, destination, and purpose of each trip. Contemporaneous means written down around the time of the trip, not reconstructed at tax time.¹⁰

Also keep records of any foster care payments and how they were reported to you (W-2, 1099, or direct payment with no form). If a payment qualifies for Section 131, your records should show it came through a state or local foster care program. Retain everything for at least three years from the date you filed the return, or two years from the date you paid the tax, whichever is later.¹⁴

1
Internal Revenue Service. Publication 501 (2025), Dependents, Standard Deduction, and Filing Information
2
Internal Revenue Service. Dependents
3
Office of the Law Revision Counsel. 26 USC 131: Certain Foster Care Payments
4
Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
5
Internal Revenue Service. Child Tax Credit
6
Internal Revenue Service. Earned Income and Earned Income Tax Credit (EITC) Tables
7
Internal Revenue Service. Qualifying Child Rules
8
Internal Revenue Service. Instructions for Form 2441 (2025)
9
Internal Revenue Service. Filing Status
10
Internal Revenue Service. Publication 526 (2025), Charitable Contributions
11
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
12
Internal Revenue Service. Standard Mileage Rates
13
Internal Revenue Service. Adoption Taxpayer Identification Number
14
Internal Revenue Service. How Long Should I Keep Records?