Tax Deductions and Credits for Foster Care Expenses

Foster parents have access to several federal tax deductions and credits: the Child Tax Credit, the Earned Income Tax Credit, the Child and Dependent Care Credit, head of household filing status, and a charitable-contribution deduction for unreimbursed expenses paid out of pocket. The foster care stipend itself is generally not taxed. Everything hinges on whether the child meets the IRS tests to be your dependent, so start there.

Does Your Foster Child Qualify as a Dependent?

The IRS applies five tests. All five must be satisfied before any of the credits or the deduction become available.

Relationship. The child must be placed in your home by an authorized placement agency or by a court order. Authorized agencies include state and 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 counts time from placement rather than from January 1, so a child placed in July and still with you in December can qualify.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 for the year. Foster care payments from the placement agency count as support provided by the agency, not by you or by the child.¹
Joint return. The child cannot file a joint return, except to claim a refund of withheld taxes.²

Only one taxpayer can claim a qualifying child. When two people in different households could each claim the same child, tiebreaker rules apply, and the person the child lived with longest during the year generally wins. If another adult in your home could also claim the child, work it out before anyone files.

Foster Care Payments Are Generally Tax-Free

Stipends paid through a state, county, or qualified placement agency are excluded from gross income under Section 131 of the Internal Revenue Code. You do not report them on your return, and they do not raise your adjusted gross income.³

Difficulty-of-care payments, which the state adds when a foster child has a physical, mental, or emotional condition requiring extra attention, are also excluded as long as the care is provided in your home.³

Two consequences follow. The money in your pocket is genuinely untaxed, so each dollar of stipend is worth more than a dollar of wages. And because the stipend never enters AGI, it will not push you past the income cutoffs for income-tested credits like the EITC.

The Credits That Put Money in Your Pocket

Credits reduce tax dollar-for-dollar, which makes them far more valuable to most foster families than the charitable-contribution deduction. None of these require you to itemize.

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. The full credit is available at income up to $200,000 ($400,000 for married filing jointly), with a gradual phase-out above those thresholds.⁴

If your tax liability is too small to absorb the full credit, the Additional Child Tax Credit refunds up to $1,700 per child. You can receive that refund even if you owe no federal income tax.⁴ These amounts are now indexed for inflation, so 2026 figures will be modestly higher.

Earned Income Tax Credit

The EITC is fully refundable and aimed at low-to-moderate-income workers. Adding a qualifying foster child to your return can increase the credit substantially or make you eligible when you otherwise would not be. For 2025, the maximum amounts are:⁵

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)

Foster care stipends excluded under Section 131 do not count as earned income or AGI, so the stipend will not disqualify you. The child must have a valid Social Security number to count for the EITC.⁶

Child and Dependent Care Credit

If you pay for daycare, after-school care, or a babysitter so that you can work or look for work, this credit covers a percentage of those costs. The qualifying child must be under 13, or any age if disabled. Claim it on Form 2441.⁷

Head of Household

If you are unmarried and pay more than half the cost of keeping up the home where your qualifying foster child lives, you can file as head of household. This isn’t a credit, but it lowers your tax rate and raises your standard deduction from $16,100 to $24,150 for 2026, an $8,050 difference applied before any credits.⁸ The child must meet the residency requirement to qualify you for this status.

Deducting Unreimbursed Expenses

Costs you cover from your own money that the stipend did not reimburse — clothing, school supplies, medical co-pays, food beyond what the stipend covers, transportation — can be claimed as charitable contributions. The reasoning is that your service to the placement agency is volunteer work for a qualified organization, and these are out-of-pocket costs of that volunteer work.⁹

Two conditions apply. The expenses must be unreimbursed costs to feed, clothe, and care for the foster child. And they must be incurred primarily to benefit the qualified organization rather than for a personal purpose. Foster parents who are also pursuing adoption should know that if the IRS concludes the primary motivation was to adopt rather than to serve the agency’s mission, the deduction can be disallowed.

Itemizing Is Required

The deduction only helps 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 filing jointly.¹⁰ Your total itemized deductions — mortgage interest, state and local taxes, charitable contributions including these foster care expenses, and everything else — need to exceed the standard deduction before itemizing pays off. For many foster parents, the standard deduction wins, which means this deduction delivers no actual benefit. The credits above do most of the work.

Mileage

Driving related to the child’s care — school runs, medical appointments, extracurricular activities — counts as a charitable contribution. You can deduct the actual cost of gas and oil, or use the IRS standard charitable mileage rate of 14 cents per mile. General car maintenance, depreciation, insurance, and tires are not deductible. Parking fees and tolls are deductible under either method.⁹ The 14-cent rate is set by statute and has not moved in over a decade, so do not confuse it with the much higher business mileage rate.¹¹

You Need the Child’s Social Security Number

Every credit on this page requires the foster child’s SSN. The number exists, but placing agencies do not always pass it along automatically.

Ask your caseworker or the placement agency directly. Many states require the agency to share the SSN with caregivers on request, and a written request citing your need to claim federal tax credits usually works. If the agency cannot or will not provide it, go to your nearest Social Security Administration office with your photo ID, the foster placement agreement, and any identifying documents you have for the child (birth certificate, Medicaid card).

The Adoption Taxpayer Identification Number (ATIN), applied for on Form W-7A, is issued only when a domestic adoption is pending and you cannot obtain the SSN. If you are fostering without a pending adoption, the ATIN is not available to you.¹²

Records to Keep

If any of this is questioned later, the burden of proof is yours. Keep the official placement agreement from the agency or court; it proves the relationship test and, with dates, the residency test. If the child was placed partway through the year, the agreement’s placement date establishes that the child lived with you for more than half the time since arrival.¹

For the charitable-contribution deduction, save receipts for every unreimbursed expense: clothing, school fees, medical co-pays, food beyond the stipend. For driving, keep a mileage log noting the date, destination, and purpose of each trip. The IRS expects contemporaneous records, written at the time, not reconstructed in April.⁹

Also keep records of foster care payments you received and the form on which they were reported, if any. For a payment to qualify for the Section 131 exclusion, your records should show it came through a state or local foster care program. Hold on to 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.¹³

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. Child Tax Credit
5
Internal Revenue Service. Earned Income and Earned Income Tax Credit (EITC) Tables
6
Internal Revenue Service. Qualifying Child Rules
7
Internal Revenue Service. Instructions for Form 2441 (2025)
8
Internal Revenue Service. Filing Status
9
Internal Revenue Service. Publication 526 (2025), Charitable Contributions
10
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
11
Internal Revenue Service. Standard Mileage Rates
12
Internal Revenue Service. Adoption Taxpayer Identification Number
13
Internal Revenue Service. How Long Should I Keep Records?