Common Questions

Below are some questions foster and adoptive parents commonly ask about filing their taxes.

• May I claim my foster or adopted children as dependents?
• Do foster or adoptive parents qualify for the Child Tax Credit?
• Do I qualify for the Earned Income Tax Credit (EITC)?
• What is the maximum income to qualify for federal and Illinois EITC for 2007?
• Can I get a tax break for adoption expenses?
• Can I be taxed on money I receive to care for my foster children or adopted children?

Have additional questions? Check out the Center’s 2007 Tax Booklet for Illinois Foster & Adoptive Parents. Email us to order this booklet or submit your question(s) to Center staff.

May I claim my foster or adopted children as dependents?

In most cases, parents can claim a foster or adopted child who has lived with them for more than six months during the tax year.

Many tax benefits have requirements related to the dependency exemption. Children who qualify as dependents may also qualify for other tax advantages, such as the Child Tax Credit, education credits, deductions for medical expenses and the Child and Dependent Care Tax Credit.

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Do foster or adoptive parents qualify for the Child Tax Credit?

Maybe. The credit is based on income and the number of qualifying children. For tax year 2007, the maximum credit is $1,000 per qualifying child.

Generally, the Child Tax Credit is nonrefundable, which means it only benefits to taxpayers who have sufficient income to owe income tax. However, in some cases, the credit can be refundable and increase the taxpayer’s refund even when no income tax is being paid.

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Do I qualify for the Earned Income Tax Credit (EITC)?

Maybe. The EITC is a refundable tax credit available to low-income taxpayers who have earned income. To claim it, you, your children and your spouse (if applicable) must have valid Social Security Numbers (SSN). Additionally, your children must be under under the age of 18 or under 24 for a full-time student (there’s no age limit for special needs children).

A recent change to Illinois income tax law, effective for tax year 2007, makes the definition of a qualifying child the same for both federal and Illinois income tax preparation. This is good news for many families. In the past, foster children and disabled children who qualified for the federal credit did not always qualify for the full Illinois credit. The Illinois EITC is five percent of the federal EITC; the maximum Illinois credit for 2007 is $236.

For Illinois taxpayers with at least one qualifying child, this credit is fully refundable (you receive the credit amount even if no tax is owed).

The two issues in determining eligibility are income limits and the definition of qualifying child.

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What is the maximum income to qualify for the Federal and Illinois EITC for 2007?

Note: For all taxpayers, investment income must be less than $2,900.

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Can I get a tax break for adoption expenses?

Two benefits are available to parents who pay adoption expenses, such as adoption fees, court costs, attorney fees, travel expenses and other expenses.

First is the Adoption Credit. For 2007, the maximum Adoption Tax Credit is $11,390 for each child adopted (under the age of 18), including a special needs child (no age limit). If you can’t use the full value of the adoption credit in one tax year, you may carry it forward for five taxable years. Parents who adopt a special needs child receive the full amount of the tax credit, even if actual expenses are less.

The second benefit is the exclusion of employer-provided adoption assistance payments. The same expenses cannot be used to claim both benefits.

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Will I owe taxes on money I receive to care for my foster children or adopted children?

An adoption-assistance subsidy is not considered taxable income and, therefore, is not reported on state and federal tax returns. 

Foster care maintenance payments, specialized fee payments and other reimbursements to foster parents from nonprofit child-welfare agencies generally are not considered taxable, as long as the payments are for care provided in the caregiver’s home. However, keep in mind there are exceptions if the IRS determines that the foster parents are operating a business.

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