Foster parents receive payment from the child welfare agencies in the state where they reside. Funding to these state agencies comes from the Children's Bureau, which is part of the U.S. Administration for Children and Families. The money is a subsidy for the care of the children, not income. It's not intended to compensate foster parents for their time.
Foster parents are volunteers for the foster care agency that licenses their home. They're not employees of the state. Services provided by foster parents take the form of care to the children they volunteer to take in.
Foster Care Subsidies
States provide a monthly amount of money for each foster child within a home, referred to as a foster care subsidy. Many adults become foster parents with the intention of it becoming a job or providing income for their family, but a foster care subsidy is intended to pay for the foster child’s needs.
Subsidies typically aren't sufficient to maintain the costs of a household. For example, New Jersey's subsidies start at just $716 a month, although this can increase depending on the child's age and the level of care required.
Subsidies are sometimes barely enough to cover the child's needs, and many foster parents find that they must come out of pocket for a child's expenses.
Taxes and Foster Care Subsidies
A foster care subsidy isn't considered to be taxable income. You shouldn't have to report it on your tax return if you're a foster parent, but you might want to check with a tax professional if any unusual circumstances apply to your personal situation. For example, you might have to include subsidies in your income if you're caring for more than five qualifying foster adults.
Your agency worker might also be able to answer some tax questions for you, but it's best to consult with a professional tax preparer.
Is Your Foster Child Your Dependent?
The IRS indicates that your foster child might be claimed as your dependent subject to certain rules. The Internal Revenue Code (IRC) requires that the child be placed with you by an authorized agency, such as a government agency, or by court order. It must be a formal foster relationship.
The child must meet all the usual criteria for a child dependent as well:
- They're under age 19, or age 24 if they're a full-time student or they're disabled.
- They're younger than you, or you and your spouse if you're married and filing a joint tax return or they're disabled.
- The child lives in your home for more than half the year.
But there's a catch. The IRS also provides that the right to claim a qualifying child dependent always goes first to the parent. You could be disqualified from claiming the child if their parent chooses to do so.
Foster Parent Income
Prospective foster families are usually asked to provide proof of income during the application process. It's important for foster agencies to know that a family is able to provide for their own children without the foster care subsidy.
The foster care subsidy should not be considered as supplemental income or a way to pay for your own child’s clothing, after-school clubs, lessons, or other activities.
Final Thoughts for Fostering
You shouldn't become a foster parent with the goal of considering it a job. Foster parenting is work, just not the kind that's normally compensated with money. You should consider the benefits to the child over the benefits for yourself if you're considering becoming a foster parent.
Foster parenting might not be a good option for you if you don't have the patience or aptitude to deal with children that have been abused, neglected, or abandoned.
Children who are in a foster program are in need of a support network. They need people who are empathetic to the situation they are in. Fostering a child, teenager, or young adult is not a task that should be taken on lightly. It can nonetheless be a rewarding experience—just not financially.