Claiming Children in Care
A. The most authoritative source for information on whether foster parents can claim a foster child as a dependent is IRS publication 501, Exemptions, Standard Deduction and Filing Information.
Please Note: Though IRS regulations clearly allow foster parents to claim the children in their care on their federal taxes, many are inadvertently prevented from doing so if they don’t have access to the child’s social security number. The Social Security Administration currently has a memorandum of understanding with the states that prevents the states from sharing social security numbers with foster parents in an effort to protect children’s privacy. Foster parents who don’t know the social security number of children in their care are unable to claim them on their taxes and the state is prevented from sharing the numbers. NYSCCC is engaged in active advocacy on this contradiction in federal regulation and working with federal officials to resolve it. See advocacy hot topics for more information.
B. General requirements: To be considered a dependent for tax purposes, an individual must be either the taxpayer’s “qualifying child” or “qualifying relative,” as those terms are defined in IRC Sec. 152. A qualifying child must meet 4 tests: (1) relationship, (2) age, (3) residency, and (4) self-support. Depending on the circumstances, the foster child may meet the 4 tests.
- In general, a foster child meets the relationship test if he or she is an “eligible foster child,” which is defined in IRC Sec. 152(f) as “an individual who is lawfully placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.”
- A child meets the age test if he or she is (a) under 19 at the close of the calendar year, (b) a full-time student who is under 24 at the close of the tax year, or (c) any age if permanently and totally disabled.
- The residency test requires that the child live with the taxpayer (i.e. foster parent) for more than one-half the tax year.
- The self-support test requires that the child not provide more than half his or her own support during the tax year. (Note that it doesn’t matter how much of the child’s support the taxpayer provides, merely that the child himself cannot provide more than half his own support.) Foster care payments received by the foster parent on behalf of the child are considered support provided by the government, and not as support provided by the child.
C. Earned Income and Child Tax Credits: Many foster families raising children qualify for federal tax credits and don’t even know it. The Earned Income (EIC) and Child Tax Credit (CTC) are federal tax benefits for low and moderate income wage earners. Some people can receive a refund even if they don’t owe income tax and many can receive both credits. In 2013 a married couple and raising two or more children in their home for more than half the year with a joint income of $37,000 could get an EIC of up to $2,391.00. Wage earners raising children can get an even larger refund by also claimng the CTC.
For purposes of the EIC and CTC, a foster child must be placed with the wage earner by an authorized placement agency, state agency, or court. The child must live with the wage earner for more than half the tax year and meet the other requirements for qualifying child. Foster payments do not generally count as income when determining eligibility for the EIC or CTC. For more information see: IRS Publication 596, the Earned Income Tax Credit and IRS Publication 972, the Child Tax Credit
D. Obtaining an Adoption Taxpayer Identification Number (ATIN). Recent tax law changes require that when you list a person’s name on your federal income tax return, you must provide a valid identifying number for that person. An ATIN is an Adoption Taxpayer Identification Number issued by the Internal Revenue Service as a temporary taxpayer identification number for the child in a domestic adoption where the adopting taxpayers do not have and/or are unable to obtain the child’s Social Security Number (SSN). If you are in the process of adopting a child, are eligible to claim the child as your dependent, and you don’t have the child’s SSN, then you will need to request an ATIN in order to claim the child as a dependent and ( if eligible) to claim the child care credit. See the IRS website for qualifications and information on requesting an ATIN.