Foster Child - Foster Care Payments

[FULMNTE]

What is the name of your state? TN

We have a heated discussion on another messageboard if foster care payments received by state or agencies are to be counted as "support provided by the foster child", i.e. as the child's "income" for Federal Income Tax Purposes.

Here is my view on this:

I do not see anywhere mentioned in IRS Publication 501 that foster care payments are to be considered as the child's non-taxable INCOME...

All I see is on page 15: Payments you receive for the support from a foster child of a child placement agency are concidered support provided by the agency. Similarly, payments you receive for the support of a foster child from a state or county are concidered support provided by the state or county.

That would make them payments provided by others (state, agency) for the child's support, right?

Now let's look at the "IRS Worksheet for Determining Support". You would enter "0" on line 1-5, unless your foster child has savings or an actual income (from working at McDonald's or similar). After filling out everything else, you are likely to answer "NO" on line 22. If your foster child meets all the other criteria (residency, etc.), IRS says you stop there.

Which means that line 23, where you would enter the support provided by state or other agencies, never comes into play!

Let me know if I see that wrong...

 

[Snipes5]

I'm not going to look at that pub to see if you are doing it right.

I care not for line numbers and instructions.

If the child is not providing 51% of his own support, you may claim him.

Foster care payments are NOT income to the child. They are support for the child from the state/county/whatever. Let me say that again. They are NOT income to the child, they are SUPPORT for the child, but they do not come FROM the child, so the payments do not mean the child is contributing to his own support. If line 23 asks about support from other agencies, that is where you would list the foster care payments.

So what site is this on? I love a good discussion.

Snipes

 

[FULMNTE]

Exactly like I thought it would be. I just called the IRS and they confirmed what you say as well...

The discussion is here:
http://forums.adoption.com/showthread.php?t=235269

 

[dallas702]

Good grief! I thought I had this clear, but as I waded back through the entire post I am now (again) in cloudy water.

If my 3 foster kids (my grandchildren) are qualified by the IRS rules, I was under the impression that the support paid by the state was not taxable income. After reading all that I'm confused as to whether or not I am supposed to report the support payments. Do those support payments amount to more than what we spend on their care? I don't know. Do we have to show some kind of balance sheet? Lord, I hope not.

So, is the support stipend from the state reportable and/or taxable???

 

[dallas702]

OK....I went back to IRS Pub 525 again. Children placed in a home by a foster care agency/state receive support payments through the caregiver(s). As was mentioned, it is NOT income to the children. It is a support payment to the fosterparents/caregivers...and is "generally" not reportable. Some of the additional payments for special care may be reportable, but not the basic stipend.

AND, the caregiver can claim the exemption for each child as long as they are "qualified".

The only real difference is if the caregiver has 5 or more children who are 19 or more years old. If you are in that situation you need a tax preparer and a counselor....and a lot of prayer.

 

[Snipes5]

Since your foster kids are also your grandkids, they are qualifying children for you, irrespective of any foster care placement or qualification.

Snipes

 

[FULMNTE]

OK....I went back to IRS Pub 525 again. Children placed in a home by a foster care agency/state receive support payments through the caregiver(s). As was mentioned, it is NOT income to the children. It is a support payment to the fosterparents/caregivers...and is "generally" not reportable. Some of the additional payments for special care may be reportable, but not the basic stipend.

You might also want to look up IRS Code Section 131 which states that foster car payments that YOU receive are tax-exempt...

 

[dallas702]

Thanks to all of you. I really hate it when I'm halfway through the forms and schedules, and then I see something that makes me think "Omigod they've changed the rules again".