EARNED INCOME TAX CREDIT

This release is to advise foster parents, adoptive parents, kinship caregivers and subsidized guardians of various tax benefits available to eligible families.  This memo also notes barriers encountered by caregivers and effective remedies to improve claiming of available tax benefits.

Tax Benefits- The principal tax benefit is the Earned Income Tax Credit (EITC), which has been available to caregivers since 1991.  The maximum value of EITC in the 1998 tax year was $3,756.  There is a startling array of the other tax benefits available to caretakers involved with the child welfare system.   For example, certain kinship caretakers, adoptive parents, and subsidized guardians may claim a dependency exemption for children in their home.  These families may also claim the childcare credit, and the child tax credit.  In addition, middle and upper income foster families can take a charitable deduction for unreimbursed expenses incurred in caring for foster children.  An adoption tax credit can be claimed for qualified expenses incurred in caring for foster children.  An adoption tax credit can be claimed for qualified expenses, up to $6,000 for a special needs child (this credit has limited applicability to adoptions of foster children).  The total value of these benefits can average several thousand dollars per family, and may be substantially higher in some cases.

Barriers-  The rules governing these tax benefits are relatively complex, and the IRS does not effectively explain the applicability of these rules to foster and adoptive parents in their respective publications.  Although there are several hundred thousand foster parents in the United States, there are about 114 million individual tax returns filed each year.  This group is therefore a relatively esoteric nitch that the professional tax preparation community often misunderstands and inadequately serves.  Of course, lower income tax payers, such as kinship caregivers are at even greater risk of losing valuable tax benefits.

Remedies-  The Department of Children and Family Services has taken steps to assure that foster and adoptive caregivers become informed of available tax benefits.

If you are interested in additional information regarding Earned Income Tax Credit, publications and forms can be ordered by phone by calling (800) 829-3676, or by writing the IRS at:  P.O Box 8903 Bloomington, IL 61701-8903.