Are You
a Foster Care Provider?
Some of your payments may be nontaxable
If you are a
foster care provider, you may be eligible to exclude qualified foster care
payments from your income during tax preparation. The payment must be for the care of a qualified
foster care individual, or must be a difficulty of care payment.
Before the law
changed, a qualified foster care payment had to be paid to a foster care
provider by either: 1) a state or political subdivision of a state; or 2)
a tax-exempt placement agency. Payments made by a placement agency that
were not tax-exempt didn't qualify for the exclusion.
The new law,
effective for payments received after December 31, 2001, expands the
definition of a qualified foster care payment to include payments by a
placement agency that is licensed or certified by a state or local
government, or by an entity designated by a state or local government to
make payments to foster care providers. There is no longer a requirement
that the placement agency making the payments be tax-exempt.
The new law also
expands the definition of a qualified foster care individual who is placed
in a foster home by a private placement agency. The individual no longer
is required to be under the age of 19 at the time of placement. If you
receive payments for five or more individuals who are age 19 or over, the
payments are taxable. Payments for foster children under the age of 19
remain tax-free.
