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This page last updated on December 3,  2002

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.

 

 

 

 

 

 

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