Foster Care Tax Credit Act
- Sponsor
- Rep. Houchin, Erin [R-IN-9]
- Committees
- Education and Workforce Committee (primary)
- Last action
- Mar 27, 2025
Bottom line
The bill creates an $850 refundable tax credit for foster families, aiming to provide financial relief and support, while also implementing new reporting mechanisms to ensure proper administration and prevent fraud.
What it actually does
This bill amends the Internal Revenue Code of 1986 to establish a new refundable tax credit of $850 for eligible foster families for each qualifying foster child. It defines eligibility criteria for both taxpayers and children, includes an income-based phase-out for the credit, and mandates new information reporting requirements for foster child placements by authorized agencies and courts. Additionally, the bill directs the Department of Health and Human Services to conduct outreach on tax benefits for foster families and study the financial burdens of short-term foster placements.
Proponents argue
Supporters argue that the Foster Care Tax Credit Act provides much-needed financial assistance to foster families, recognizing the significant costs associated with caring for vulnerable children. They contend that this credit will help alleviate financial burdens, potentially encouraging more individuals to become foster parents and improving the stability and quality of care for children in the foster system. Proponents also highlight the importance of the accompanying provisions for outreach and study, which aim to better support foster families and understand the challenges of short-term placements.
Opponents contend
Critics might raise concerns about the potential cost to federal revenue, as the bill establishes a new refundable tax credit without an explicit offset, which could increase the national deficit. Some may also argue that the administrative burden of new information reporting requirements on state and tribal foster care agencies could strain their resources, potentially diverting attention from direct child welfare services. Others might suggest that direct funding to foster care agencies or other forms of support could be more effective or efficiently administered than a tax credit.
The bill is concise and clearly structured, allowing an informed reader to understand its core provisions and implications within a short timeframe.
Section 2(a), new Section 36C of the Internal Revenue Code of 1986
Establishment of the Foster Care Tax Credit
This provision creates a new refundable tax credit of $850 per taxable year for eligible taxpayers. The credit amount is reduced for taxpayers whose modified adjusted gross income exceeds certain thresholds: $250,000 for joint filers, $150,000 for single filers, and $125,000 for married individuals filing separately. The credit is designed to provide financial relief to foster families.
Supporters argue
Supporters argue that this credit directly addresses the financial strain experienced by foster families, helping them cover the daily costs of caring for foster children. They believe it will serve as a tangible recognition of their invaluable service and could incentivize more individuals to open their homes to children in need.
Critics contend
Critics might contend that while well-intentioned, the $850 credit may not be substantial enough to significantly impact the financial well-being of foster families, especially those caring for multiple children or children with special needs. They could also argue that the income phase-out might exclude some middle-income families in high-cost-of-living areas who still face significant financial pressures.
Tradeoffs
The provision balances the desire to provide financial support to foster families with concerns about fiscal responsibility and targeting benefits. The phase-out aims to direct the credit to those most in need, but also limits its universality.
Section 2(a), new Section 36C(c) of the Internal Revenue Code of 1986
Eligibility Criteria for the Foster Care Tax Credit
This section defines who qualifies for the credit. An 'eligible taxpayer' is someone who housed a 'qualifying foster child' for at least one month during the tax year and does not claim the Child Tax Credit (Section 24) for that same child. A 'qualifying foster child' must be an eligible foster child (as defined in Section 152(f)(1)(C)), under age 17, and a U.S. citizen, national, or resident. A child residing for more than 15 consecutive days in a calendar month is counted as residing for the full month.
Section 2(b), new Section 6039K of the Internal Revenue Code of 1986
Information Reporting for Foster Child Placement
This provision mandates that authorized placement agencies and courts annually report specific information to the IRS regarding qualifying foster child placements. This information includes the name, address, and taxpayer identification number (TIN) of each foster parent, the name of the foster child, and the dates of placement. These agencies must also provide a written statement containing this information to the foster parents by January 31st of the following year.
Sections 2(f) and 3
Outreach and Study on Foster Family Support and Short-Term Placements
This bill directs the Secretary of Health and Human Services (HHS), in coordination with the Secretary of the Treasury, to identify existing tax provisions beneficial to foster families and increase outreach efforts to provide educational materials to state and Indian tribal foster care agencies and foster families. Additionally, it mandates a study by HHS, in coordination with Treasury, on the costs and financial burdens experienced by foster families due to multiple emergency and short-term placements (defined as less than one week), and the challenges in verifying such placements. A report on this study is due to Congress within one year.
This amendment allows a taxpayer to elect not to claim the Child Tax Credit (CTC) for a dependent. This is critical because the new Foster Care Tax Credit (FCTC) explicitly states that it is not allowed if a credit under Section 24 (CTC) is claimed for the same child.
Section 2(c), amending Section 24(h)(4) of the Internal Revenue Code of 1986
Why it matters:This is standard legislative practice for integrating new tax provisions into the existing complex tax code. It's a technical detail required to manage the interaction between two distinct tax credits and prevent unintended disqualification or double-dipping.
Case for: Supporters argue that this election provides essential flexibility for foster families, allowing them to choose the most beneficial credit for their specific circumstances. It ensures that families are not inadvertently penalized or disqualified from the FCTC if they are also eligible for the CTC for the same child.
Case against: Critics might contend that requiring taxpayers to make an election between two credits adds a layer of complexity to tax filing, potentially leading to confusion or missed opportunities if families are not fully aware of the interaction or do not receive adequate guidance.
Estimated impact: Facilitates the proper and intended claiming of the Foster Care Tax Credit by eligible families who might otherwise face complications due to eligibility for the Child Tax Credit.
This subsection establishes disallowance periods for the Foster Care Tax Credit: 10 taxable years if a claim was due to fraud, and 2 taxable years if due to reckless or intentional disregard of rules and regulations (but not fraud). It also requires taxpayers denied the credit due to deficiency procedures to provide additional information to the Secretary of the Treasury to demonstrate eligibility for subsequent claims.
Section 2(a), new Section 36C(d) of the Internal Revenue Code of 1986
Why it matters:This is standard legislative practice for tax credit provisions. Including robust anti-fraud and compliance measures is essential for protecting taxpayer funds and maintaining the integrity and public trust in government programs.
Case for: Proponents argue that these disallowance periods and information requirements are crucial for deterring fraudulent or reckless claims, ensuring that the credit is only provided to legitimate foster families, and protecting the federal budget from abuse. They are standard measures for tax credits.
Case against: While generally accepted, some might argue that the 10-year disallowance period for fraud is a severe penalty, though it aligns with existing tax code enforcement. Others might express concern about the burden on taxpayers to provide additional information after a denial, even if justified.
Estimated impact: Reduces fraudulent and improper claims, thereby ensuring the credit is directed to its intended beneficiaries and minimizing revenue loss due to non-compliance.