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Can I claim my foster children as dependents?

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Dear Dollar Diva,

What are the tax rules relating to foster children? I have two foster children who have lived with us for more than two years. We will adopt the 8-year-old when the state gets everything lined up; the 16-year-old is long-term foster care until he is 18. Can we claim the foster children as dependents?

— Roger

Foster children as dependents

To claim a foster child as a dependent you have to pass the following tests:

  • Relationship — The child must have been a member of your household for the entire year.

  • Citizen or resident — The child must be a U.S. citizen or resident alien, or a resident of Canada or Mexico.

  • Support — You must provide at least half of the child’s total support for the year.

The Diva doesn’t have enough information to know if you pass the support test, but she can help you figure it out. You need to determine what it costs to support each child for the year and where the money for the support came from.

Support includes the child’s share of housing, food and household expenses. It also includes the child’s personal expenses, such as clothing, education, medical care and recreation.

Where the support came from includes the amount others — such as state and welfare agencies — provided, as well as the amount you provided.

Go to IRS Publication 501, Exemptions, Standard Deduction and Filing Information to find a user-friendly worksheet that helps figure out what the child’s expenses were and whether you paid half.

The Diva assumes you are not in the trade or business of providing foster care. If providing foster care is how you make a living, you cannot claim your foster children as dependents.

Adopted children as dependents

When a child is placed with you for adoption by an authorized agency at any time during the year, he is treated as your biological child for tax purposes. He doesn’t have to live with you for the entire year to be claimed as a dependent, even if he wasn’t adopted until the following year.

However, to claim any child as a dependent, you still have to pass the support test.

Adoption Credit

You may be able to claim a credit for adoption expenses such as adoption fees, court costs, attorney fees and any other reasonable and necessary adoption expenses. The credit is claimed on Form 8839, Qualified Adoption Expenses, and attached to your Form 1040. For more information, see the instructions to Form 8839.

Earned Income Tax Credit

If your earned income was less than $30,580, you may be eligible for the earned income tax credit. The EITC is a special credit for low-income working people, and it is a credit that is often missed by eligible taxpayers. You do not have to pass the support test for your foster children to be considered as qualifying children for the EITC.

The IRS wants you to take it if you’re entitled to it and has dedicated a section of its Web site to giving plain-English answers to taxpayers’ questions about the EITC.