Foster child

[Dave T]

Client who lives out of the area contacted me recently about foster children.

She and husband took in a special needs child ( 6 years old ) in July of 2012. Her questions concerned dependency and CTC.

In reviewing Pub. 501 I've detemined that the child is a qualifying relative and not qualifying child due to not being in the home for over six monts. ( Miised by a week.)

A few other facts: they are not in the foster care businsess and would like to adopt the child. The State agency provides them $40.00/ day for the care of the chlld.

My question, in looking at the support worksheet in Pub 501 I can't figure out if this payment from the State is used to calculate the over one half support test?

Thanks for any assistance that can be provided.

Dave T

[TaxMan60601]

Looking again at pub 501, you will see:

Example 2. You provided $3,000 toward your 10-year-old foster child’s support for the year. The state government provided $4,000, which is considered support provided by the state, not by the child. See Support provided by the state (welfare, food stamps, housing, etc.), later. Your foster child did not provide more than half of her/his own support for the year.

[jainen]

>>I can't figure out if this payment from the State is used to calculate the over one half support test?<<

It is. Since they don't meet the rules for a qualifying child, they are stuck with the old dependency rules, now called qualifying relative. It is unfair in the sense that it only adds up the dollars, which is the least important part of supporting a child. But of course tax benefits are only about dollars anyway.

Your clients may have to be satisfied with the tax free government stipend of $40 per day , plus no doubt 100% medical coverage, which is vastly more than most working families have to raise their children. In half a year they received five times the value of the exemption and CTC.