Do You Still Get Paid If You Adopt a Foster Child?

Yes, if you adopt a child you have been fostering, you generally keep receiving a monthly payment. It is called adoption assistance, and it replaces the foster care maintenance payment you were getting before the adoption was finalized. The amount is negotiated between you and the state child welfare agency, and by federal law it can never exceed what the child’s foster care payment would have been.¹ The catch that trips up more families than anything else: the agreement has to be fully signed before the judge signs the adoption decree, or you can lose eligibility altogether.

How the Monthly Payment Works

Adoption assistance is a contractual arrangement between the state agency and adoptive parents, meant to cover the child’s daily needs: food, clothing, shelter. It comes out of the joint federal-state program at 42 U.S.C. 673, which grew out of the Adoption Assistance and Child Welfare Act of 1980.¹ The statute tells the agency to set the amount through negotiation with the adoptive parents, weighing both the family’s circumstances and the child’s needs.

One hard ceiling applies: the monthly adoption assistance payment can never exceed the foster care maintenance payment the child would have received in a foster family home.¹ Many families negotiate a rate equal to or somewhat below their prior foster rate. The exact dollar amount varies by state, the child’s age, and the level of care needed. Some states tier their rates by age bracket, with older children and those needing more intensive care receiving higher payments.

These payments aren’t wages. They’re public assistance directed at the child’s welfare, which is why the tax rules treat them the way they do.

Which Children Qualify

The child has to be designated as having “special needs” for the family to receive adoption assistance. The term is broader than it sounds. Under federal law, the state has to determine three things: the child cannot or should not return to the biological parents’ home, a specific factor makes it reasonable to conclude the child can’t be placed without financial assistance, and a reasonable but unsuccessful effort was made to place the child without a subsidy (unless doing so would harm the child because of existing emotional bonds with the foster family).²

The specific factors listed in the statute include the child’s age, ethnic background, membership in a sibling group, and medical conditions or physical, mental, or emotional challenges.² Each state fills in the details, so an older child who meets the threshold in one state may not in another. In practice, most children in foster care meet at least one factor, which is why the great majority of foster-to-adopt placements come with an assistance agreement.

Sign the Agreement Before the Adoption Is Finalized

This is where families lose money they were entitled to. Federal law requires the adoption assistance agreement to be “in effect” for the child to be eligible for payments.¹ That means it must be fully negotiated and signed by all parties before the judge enters the final adoption decree. If the court finalizes first and the agreement hasn’t been signed, the child can become ineligible for both federal and state subsidy funds.

The timing is unforgiving. Before you schedule the court hearing, confirm with your caseworker that the agreement has been signed and processed. Keep your own copy of the fully executed document. Courts sometimes move faster than the paperwork, and once the decree is entered there is no reliable way to go back and claim benefits retroactively.

Taxes: The Payments Aren’t Income

Monthly adoption assistance payments don’t count as taxable income. The IRS has treated them as public welfare benefits since 1974, so you don’t report them on your federal return. IRS Publication 17 instructs taxpayers to exclude benefit payments from a public welfare fund, and adoption assistance falls squarely into that category.

Because the payments are considered support from the state rather than support from the child, receiving a subsidy doesn’t interfere with claiming the child as a dependent. You still need a valid taxpayer identification number. If the adoption isn’t yet finalized and the child doesn’t have a Social Security number, you can apply for an Adoption Taxpayer Identification Number (ATIN) using IRS Form W-7A to claim the child as a dependent in the meantime.³

The Federal Adoption Tax Credit

On top of the monthly subsidy, you can claim the federal Adoption Tax Credit. For tax year 2025 the maximum credit is $17,280 per eligible child, with a modified adjusted gross income phaseout beginning at $259,190.⁴ These figures are adjusted annually for inflation.

Here is what makes the credit especially useful for foster-to-adopt families. If the child is classified as having special needs and the adoption is finalized during the tax year, you can claim the full credit even if you had zero out-of-pocket adoption expenses.⁵ Since most children adopted from foster care meet the special needs definition, this effectively functions as a lump-sum benefit in the year of finalization. The credit is nonrefundable, so it can reduce your tax liability to zero but won’t generate a refund on its own. Any unused portion carries forward for up to five years. You claim it by filing IRS Form 8839.⁶ For families above the phaseout threshold the credit is gradually reduced and eliminated entirely at roughly $40,000 above the starting figure.

Reimbursement for Legal and Court Costs

Separate from the monthly subsidy, families can be reimbursed for one-time costs tied to the legal adoption process. Federal regulations define these “nonrecurring adoption expenses” as reasonable fees for attorneys, court costs, the adoption home study, health and psychological evaluations, placement supervision, and transportation, lodging, and food when travel is necessary to complete the adoption.⁷

The federal government reimburses states at a 50 percent matching rate for these expenses, up to $2,000 per child.⁷ States can set their own maximum below $2,000, which is why some caps are as low as $400. Siblings are treated individually, each with a separate reimbursement allowance. Like the main assistance agreement, the nonrecurring expense agreement has to be signed before the adoption is finalized.

Medicaid Continues After the Adoption

Children receiving adoption assistance under Title IV-E are automatically eligible for Medicaid, regardless of the adoptive family’s income.⁸ Coverage includes medical, dental, and mental health services. For families with private insurance, Medicaid acts as a secondary payer that covers gaps and eliminates out-of-pocket costs for the child.

States can also extend Medicaid to children in state-funded adoption assistance programs who don’t meet the federal Title IV-E income threshold, as long as the child was eligible for Medicaid before the adoption and has a special medical need.⁸ If your family moves to another state after the adoption, Medicaid coverage for the child generally transfers, though you may need to re-enroll in the new state’s program.

Adjusting Payments When Circumstances Change

Adoption assistance agreements aren’t set in stone. The federal statute provides that payment amounts “may be readjusted periodically, with the concurrence of the adopting parents, depending upon changes in such circumstances.”¹ If your child develops a serious medical condition, needs more intensive therapeutic services, or otherwise requires a level of care nobody anticipated at the time of adoption, you can request a rate increase.

Most states require an annual certification confirming you remain legally and financially responsible for the child. That is typically a short affidavit, not a full re-evaluation, and the agency doesn’t routinely revisit your subsidy rate. If you want an increase, you have to initiate the request. Gather updated medical or psychological evaluations documenting the change in your child’s needs before approaching the agency. The same ceiling still applies: the adjusted rate cannot exceed the foster care maintenance payment the child would have received.

Your Right to Appeal

If the state denies your application, reduces your subsidy, or refuses a requested rate increase, you can request a fair hearing. An impartial hearing officer reviews whether the agency’s decision followed the law. Common grounds for appeal include outright denial of a subsidy, a proposed rate that doesn’t reflect the child’s documented needs, suspension or termination of an existing agreement, and the agency’s failure to follow its own published policies.

You have a limited window to request a hearing after receiving a written denial. The agency has to notify you in writing of its decision and your appeal rights. If the hearing officer rules for you, the agency must adjust the agreement. Thorough documentation of your child’s needs strengthens your position.

When Support Continues Past Age 18

Under the Fostering Connections to Success and Increasing Adoptions Act of 2008, states can extend adoption assistance payments past the child’s 18th birthday and up to age 21. The child must have been at least 16 when the adoption assistance agreement took effect, and they must meet at least one ongoing eligibility condition:

Completing high school, earning an equivalent credential, or enrolled in postsecondary or vocational education
Working at least 80 hours per month, or participating in a program designed to promote employment or remove barriers to it
Unable to meet the education or employment conditions because of a documented medical issue

Not every state has opted into this extension. Whether your child qualifies depends on where the agreement originated, since the state that signed the agreement remains responsible for payments even if the family later relocates. If your child is approaching 18 and might benefit from continued support, contact your state’s post-adoption services office well before the birthday to find out whether the extension is available and what documentation you’ll need.

1
Office of the Law Revision Counsel. 42 USC 673 – Adoption and Guardianship Assistance Program
2
Office of the Law Revision Counsel. 42 US Code 673 – Adoption and Guardianship Assistance Program
3
Internal Revenue Service. Dependents
4
Internal Revenue Service. Adoption Credit
5
Internal Revenue Service. Improvements to the Adoption Tax Credit Make Adoption More Affordable
6
Internal Revenue Service. Form 8839 – Qualified Adoption Expenses
7
eCFR. 45 CFR 1356.41 – Nonrecurring Expenses of Adoption
8
Medicaid and CHIP Payment and Access Commission. Children in the Child Welfare System