The "Foster Care Tax Credit Act" establishes a tax credit of $850 for eligible foster parents, introduces income limitations, mandates information reporting from placement agencies, and requires a study on the financial burdens of emergency foster placements.
Erin Houchin
Representative
IN-9
The "Foster Care Tax Credit Act" introduces a new tax credit of $850 for eligible foster parents, subject to income limitations and certain restrictions. It mandates information reporting from placement agencies and courts, allows taxpayers to elect between the child tax credit and the new foster care credit, and includes the new credit under due diligence requirements for tax preparers. Additionally, the Act directs the Department of Health and Human Services to conduct outreach and a study on the financial burdens of emergency and short-term foster placements.
New Bill Proposes $850 Tax Credit for Foster Parents, Tied to Income Limits and Child Tax Credit Choice
This legislation, the Foster Care Tax Credit Act, introduces a new federal tax credit aimed directly at foster parents. If enacted, eligible taxpayers could claim an $850 credit for each qualifying foster child placed with them for at least one month during the tax year. The core idea is to provide some financial relief for the costs associated with fostering, specifically targeting situations where the standard Child Tax Credit isn't claimed for that child.
The Dollars and Details: Who Qualifies?
So, who gets this $850 boost? The bill lays out specific criteria. First, you need a 'qualifying foster child' – someone under 17, a U.S. citizen, national, or resident, placed with you by an authorized agency or court for at least a month (Sec. 2). Critically, you cannot claim both this new credit and the regular Child Tax Credit (CTC) for the same child in the same year; you have to choose (Sec. 2, Election). This means families will need to crunch the numbers to see which credit offers a better deal.
There are also income limits. The full credit is available for those with modified adjusted gross incomes up to $250,000 (joint filers), $150,000 (single), or $125,000 (married filing separately). Above these thresholds, the credit amount starts phasing out (Sec. 2). For folks who've run into trouble before, the bill includes restrictions: a 10-year ban for fraudulent claims and a 2-year ban for reckless claims of this credit (Sec. 2, Restrictions).
New Paperwork and Future Planning
Get ready for some new forms. The bill requires placement agencies and courts to report foster placement details (names, taxpayer IDs, dates) to the IRS and provide foster parents with an information statement by January 31st each year (Sec. 2, Information Reporting). This aims to verify claims but adds an administrative step for agencies. Tax preparers will also need to exercise extra diligence when handling this credit, as it's being added to the list requiring specific checks (Sec. 2, Due Diligence).
Beyond the credit itself, the bill directs federal agencies (HHS and Treasury) to ramp up outreach, educating foster care agencies and families about relevant tax provisions (Sec. 2, Education and Outreach)—though funding for this depends on future appropriations. It also mandates a one-year study looking into the financial burdens and documentation challenges faced by families handling emergency and very short-term foster placements (less than a week), potentially paving the way for future policy adjustments in that tricky area (Sec. 3).