Quick answer
Foster parents generally choose between Head of Household (HOH) and Married Filing Jointly (MFJ) depending on marital status and who pays more than half the household costs. A foster child can be a qualifying person for HOH and for child-focused tax credits if they meet the IRS relationship and residency tests, including special rules that apply when a child is placed by an authorized agency. See IRS Publication 501 for filing status rules and Pub 963 for foster-care specifics (links below).
Why filing status matters for foster families
Your filing status determines your tax bracket, the size of your standard deduction, and eligibility for credits like the Child Tax Credit and the Earned Income Tax Credit (EITC). For many foster parents, choosing HOH instead of Single or Married Filing Separately can lower taxes because HOH uses wider tax brackets and a higher standard deduction. For married couples, filing jointly often yields the lowest combined tax bill, but there are scenarios where separate filing is necessary or advantageous.
Key IRS rules that apply to foster children
- Relationship test: A foster child placed with you by an authorized placement agency generally meets the IRS “qualifying child” relationship test even if not related by blood. (IRS: Publication 501; Publication 963.)
- Residency test: The child must live with you for more than half the tax year to be a qualifying child for most credits and for HOH. Temporary absences (school, medical care, placement with another family for short periods) usually don’t break residency.
- Support test: For a qualifying child, you do not have to provide more than half the child’s support. The support test is primarily for “qualifying relative” scenarios; for qualifying child rules, the child generally must not have provided more than half of their own support.
- Placement by agency: Children placed by an authorized placement agency or by a court often count as placed in your home for more than half the year even if legal custody differs.
(Authoritative sources: IRS Publication 501 and IRS Publication 963.)
Head of Household: when a foster parent can use it
You may file as Head of Household if all these are true:
- You are unmarried or considered unmarried on the last day of the year.
- You paid more than half the cost to maintain the home for the year.
- A qualifying person lived with you more than half the year — a foster child placed with you by an authorized agency can meet this test.
Important nuance: “Considered unmarried” allows some married taxpayers who lived apart from a spouse during the last six months to claim HOH if other conditions are met. See IRS Publication 501 for the full test.
Practical example: A single foster parent who pays the mortgage, utilities, food, and childcare for a home where the foster child lived for eight months commonly qualifies for HOH. That status increases the standard deduction and may open eligibility for credits like the Child Tax Credit and EITC, depending on income.
Married Filing Jointly and fostering
Married couples generally file jointly to combine income and use the wider joint tax brackets. If a married couple fosters a child, they can usually claim the child as a qualifying child on a joint return if the child lived with them and the other tests are satisfied.
When married filing separately might apply: If spouses disagree about reporting or if one has tax complications (like major medical deductions or liability issues), they may need to file separate returns. Be aware that filing separately often reduces or disqualifies eligibility for certain credits such as the EITC.
How foster placement affects qualifying-child tests
The IRS treats many foster placements differently from ordinary custody situations. A child placed with you by an authorized placement agency (state agency, licensed child-placement agency, or court placement) is treated as your foster child for qualifying-child tests even if the placement is temporary or the parents still have legal custody. Keep placement records and case numbers; these help if the IRS questions the claim.
Credits commonly at play for foster households
- Child Tax Credit (CTC): A qualifying foster child may make you eligible for the CTC if age and other IRS rules are met. Check the current credit amounts and phaseouts on the IRS CTC page. (IRS: Child Tax Credit)
- Earned Income Tax Credit (EITC): Foster children can be qualifying children for EITC calculations if they meet the relationship and residency rules. EITC rules are complex and depend on income limits and filing status. (IRS: EITC)
- Child and Dependent Care Credit: If you paid for care to allow you to work or look for work, some foster-care expenses paid to licensed providers can qualify for a partial credit.
Important: many credits have age tests, SSN/ITIN requirements, and residency rules. Always confirm eligibility details on the IRS pages linked in the resources section.
Documenting residency, placement, and expenses
Thorough records reduce audit risk and speed replies if the IRS requests proof. Keep these items at minimum:
- Placement paperwork or written confirmation from the agency or court.
- School records, medical records, and immunization forms showing the child’s address and dates of presence in your home.
- Receipts and canceled checks for household expenses you paid (rent/mortgage, utilities, groceries) that support the “more than half” cost test.
- Records of any foster-care payments or reimbursements you received from an agency — these can affect whether the child is a dependent for certain credits (document amounts and purpose).
A note from practice: In my experience helping dozens of foster families prepare returns, having a placement letter with dates and a file of household expenses cuts typical IRS questions by half. If an agency reimburses you for specific expenses, document whether the payments were for the child’s personal needs (which typically don’t count as your income) or for household costs.
Common mistakes and how to avoid them
- Assuming all foster placements qualify: If a child did not live with you more than half the year and there’s no agency placement exception, you can’t treat the child as a qualifying person.
- Overlooking taxpayer residency rules: Temporary absences are allowed, but lengthy placements elsewhere break the residency test.
- Forgetting to account for reimbursements: Agency payments can affect the support analysis and sometimes the tax treatment of reimbursements; keep clear records.
- Filing status confusion for married couples: Couples should run both joint and separate scenarios or consult a tax pro if credits like EITC are in play.
Step-by-step to pick the correct filing status (practical checklist)
- Confirm marital status on the last day of the tax year.
- Confirm whether the foster child lived with you more than half the year (collect placement and residency documents).
- Total household expenses and confirm you paid more than half to maintain the home.
- Check each credit’s specific qualifying rules (age, SSN, residency, support).
- Run both MFJ and, if applicable, HOH calculations to compare tax outcomes or consult a tax preparer.
Scenarios you might see
- Single foster parent supporting one or more foster children who live with them most of the year: Likely qualifies for HOH and possibly CTC/EITC depending on income.
- Married couple fostering a child: Filing jointly will usually yield the best tax outcome and allow claiming child-related credits; file separately only after careful analysis.
- Temporary foster placement under six months without agency placement: May not meet HOH/residency tests.
Frequently asked questions (brief)
Q: Can I claim a foster child placed by an agency for less than 6 months?
A: Usually no for the residency test, unless special placement rules apply. Agency placement can sometimes change the counting — keep placement records. (IRS Pub 501; Pub 963.)
Q: Do foster-care payments count as income?
A: It depends on the type of payment. Reimbursements for foster-care expenses paid directly by an agency are generally not taxable; however, some payments can be taxable. Consult IRS guidance (Pub 963) and your agency.
Q: Can a foster child be a qualifying child for EITC?
A: Yes, if the child meets the relationship, residency, and age tests required for EITC. EITC eligibility depends on income and filing status limits. (IRS: Earned Income Tax Credit)
Professional disclaimer
This article provides general information about filing status options for households with foster children and cites IRS publications for reference. It is not individualized tax advice. For personalized guidance, consult a licensed tax professional or CPA experienced with foster-care tax issues.
Related reading on FinHelp
- For details on HOH requirements and scenarios, see our HOH guide: Head of Household.
- For a deeper dive into child-specific credits, see: Child Tax Credit Explained.
- For rules on claiming dependents and qualifying children, see: Qualifying Child.
Authoritative sources (consult these for current-year numbers and detailed tests)
- IRS Publication 501, Exemptions, Standard Deduction, and Filing Information: https://www.irs.gov/pub/irs-pdf/p501.pdf
- IRS Publication 963, Federal-State Reference Guide for Foster Care: https://www.irs.gov/pub/irs-pdf/p963.pdf
- IRS — Child Tax Credit: https://www.irs.gov/credits-deductions/individuals/child-tax-credit
- IRS — Earned Income Tax Credit (EITC): https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc
If you want, I can prepare a printable checklist of the documents you should gather before meeting a tax preparer.
