Is Foster Care Stipend Taxable?

Is Foster Care Stipend Taxable?

Deciding to become a foster parent is a big decision that can potentially change your life as much as the child's life in your care.

Becoming a foster parent is a calling that can involve opening your home to a child for a matter of days, months, or forever. Naturally, the decision to take on this role typically comes with many questions.

Whether you are a foster parent already or are considering becoming one, you're likely aware that providing foster care comes with a monthly stipend. Many potential foster parents want to know whether that stipend is subject to taxation under our current tax systems, if this is state or federal.

Keep reading to find out the most important things you need to know about your parenting stipends, taxation, and tax deductions.

What Foster Parents Need To Know About Foster Care Stipend Taxation

Foster children are not always eligible for the same tax credits and deductions as biological children. However, there are several tax breaks available to support you and the child you are caring for while they are in the care of the local department of social services. A good time to ask these questions is while you go through your home study process. Every family is different, but your treatment foster care agency or Child Placing agency will have the basics for you. But always talk to your tax professional before filling out any government tax forms.

Foster Care Stipends Are Not Taxable Income

You need to know that you do not need to report any foster care stipends as taxable income on your tax return.

A foster care stipend is a reimbursement, not a payment. This includes any foster care stipends from either your state or local government and qualified foster care placement agencies. Foster parents do not get paid.

Foster Parents Can Claim Foster Children on Tax Returns

In Virginia, foster parents can claim a $1000 deduction for each foster child that resides in their home. To claim a foster child on your tax return, they must have lived with you for over six months.

However, a foster child does not have to be living in your home at the end of the year to be claimed but do remember the six-month rule.

In some situations, you may find that the child in your care has been incorrectly claimed by their birth family or a previous foster family. The best thing to do then is to file your tax return without claiming the child.

After that, you should file an amended tax return using Form 1040-X. This will allow you to claim the child by attaching the proper documentation of their placement in your home.

Foster Care Families Qualify for the Child Care Tax Credit

Under the 2021 child tax credit, non-traditional families, including foster children, may qualify for advanced child tax credit payments. This applies to foster parents who have a foster child under age 12 in daycare.

Foster parents can claim up to 35 percent of qualifying child care costs.

What Is the Average Foster Care Stipend in Virginia?

The goal of providing financial support to foster parents is to avoid creating financial hardship for the family. The foster care stipend should be considered as support rather than a payment.

Currently, foster parents receive $486/month for children from birth to age four. They receive $586/month for children ages five to 12. Foster parents of children ages 13 and older receive $721/month.

In addition, foster parents receive a supplemental clothing allowance each year. For ages zero through four years, the clothing allowance is $315. For ages five to 12, the annual stipend is $394 and $473 for ages 13 and older.

Learn More About Virginia Foster Parenting

Because they are a form of reimbursement rather than payment, foster care stipends are not subject to taxation. It is essential to learn everything about foster care before deciding to become foster parents.

FosterVA understands the weight of this decision and is there to support prospective foster parents, not to pressure them. To learn more about Virginia foster parenting, contact FosterVA today.

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