Tax benefits for foster and adoptive parents and kinship caregivers

Vol. 5, No. 2 • May 2001

Tax benefits for foster and adoptive parents and kinship caregivers

Many foster and adoptive parents and kinship caregivers are eligible for tax benefits worth several thousand dollars in some cases. All foster and adoptive parents should meet with a tax advisor to discuss which of the following tax benefits may apply:
1. Earned Income Tax Credit

Worth up to $3,888; average EITC benefit is $1,500

Family must have earnings under $31,152

Foster and adoptive children may be "qualifying children"

2. Dependency exemption

Foster and adoptive children qualify if a five-part test is met

Exemption of $2,800 for each qualifying dependent

3. Child Tax Credit

Worth up to $500 for each qualifying child

Foster and adoptive children under age 17 and who qualify as dependents are "qualifying children"

4. Child and Dependent Care Credit

For expenses of work-related child care

Unreimbursed child care expenses for a foster or adoptive child qualify, but only if the child is claimed as a dependent

Average child care credit in U.S. is $425

5. Education credits

Available for college tuition

Also available for certain vocational training courses

Student must be a dependent of the taxpayer

Education credits are worth up to $1,500 per year per student

Foster and adoptive parents should also be aware that newly discovered tax benefits may be claimed retroactively for up to three years. Form 1040X can be filed to correct an error in a prior year return, and collect a refund if one is due. The deadline for filing an amended return that claims a refund for the 1998 tax year is April 15, 2002. The IRS estimates that as many as 1.6 million taxpayers fail to file tax returns and miss more than $2 billion in refunds each year.
Volunteer Income Tax Assistance (VITA) programs offer free assistance in preparing tax returns. Low Income Taxpayer Clinics (LITC) offer free assistance to lower income taxpayers (earning less than $42,625 for a family of four) regarding disputes with the IRS. For information on the nearest VITA or LITC, call (800) 829-1040.
This article was prepared by the Casey Family Programs National Center for Resource Family Support (CNC).
The information on tax benefits is of a general nature, and should not be acted upon except in consultation with a tax advisor. For additional information, visit the CNC web site at <http://www.casey.org/cnc>.

Copyright � 2001 Jordan Institute for Families