When you decide to become a foster care family in Pennsylvania, your first thought probably isn’t, “I’m going to get some tax breaks!”
Instead, you’ll be spending time preparing your home for its inspection, anticipating questions your foster child might ask and how to answer them, and planning activities that will bolster the bond between you and your foster child.
When April 15 does come around, however, you’ll definitely be thinking more about the tax implications of fostering and adopting.
Tax Tips For Foster Families
While tax codes differ from state to state (and have changed nationally this year), there are a few general tax situations to keep in mind as you file this year.
For more resources on foster care and adoption in Pennsylvania, contact FCCY today! Our foster care agency would be happy to speak with you.
Is Your Foster Child A Dependent?
The first and potentially most obvious change to your tax filings will be the number of dependents you claim. While it depends on every situation, there are four main criteria that an individual must meet to qualify as a dependent:
- Age — to qualify as a dependent, a child must be under age 19 by the end of the year or under 24 and enrolled as a full-time college student for at least five months of that year or totally disabled for that year.
- Relationship — for a foster child to qualify as a recognized dependent, they must be placed in the foster home by an authorized foster care placement agency or by court order.
- Monetary support — the foster child cannot provide more than half of their own financial support.
- Residency — generally, a child must live in your home for at least half of the year. If they have switched homes or have lived with you for less than six months, consider speaking with a tax expert.
If your foster child meets these criteria, you should consider them a dependent and file as such. As always, work with a foster care or tax expert to be certain of your situation and its tax particularities.
Do You Qualify For The Adoption Tax Credit?
The Adoption Tax Credit, like most things tax-related, can be difficult to explain. In general, you can think of the Adoption Tax Credit as a tax break for which you might be eligible if you have an adopted child.
According to the IRS, the Adoption Tax Credit is non-refundable. This means it is limited to your taxes for the year; however, if your credit is greater than your tax liability, it can be carried over for five years. Sound complicated yet?
The dollar limit per child for 2018 is $13,810, which is similar to what it has been for the last five years.
The types of fees you can qualify as an adoption expense, according to the IRS, include:
- Reasonable and necessary adoption fees
- Court costs and attorney fees
- Traveling expenses (including food and lodging while on adoption-related travel)
- Expenses that are directly related to legal adoption
Keep in mind that an eligible child must be under 18 (or totally incapable of self-care) to qualify the taxpayer for this credit.
Fostering a child does not automatically qualify you for the Adoption Tax Credit. In fact, you must legally adopt a child (whether through the foster care system or not) to qualify for this credit.
Can You Itemize Deductions For Foster Care?
If you are fostering a child, you’re still eligible for a few potential tax breaks. If you choose to itemize your deductions (instead of taking the standard deduction), you can claim foster care payments as charitable donations. However, to meet these criteria, the foster care agency must be able to accept charitable donations.
In cases where the foster care agency cannot accept charitable deductions, you can still count your foster care expenses toward establishing the child’s dependent status.
About Our Foster Care Agency in Pennsylvania
FCCY has over 20 years of experience as a foster care agency in Pennsylvania. In addition to placing your family with a child in need, we also help families navigate the complexities of the foster care system.
Our Pennsylvania-based services include:
- Homemaker services
- Kinship care
- Independent living
- Emergency placement
- Respite care
- Adoption services
Contact FCCY today if you want to learn more about becoming a foster parent in Pennsylvania or have questions about taxes.