This bill adds a new refundable federal tax credit aimed at offsetting the costs of fostering children and creates parallel reporting duties for placement agencies and courts. It also directs HHS and Treasury to expand outreach to foster families and tasks HHS with a study on emergency and very short-term placements.
The measure is consequential because it channels federal support through the tax code (triggering IRS compliance, preparer due-diligence, and anti-fraud rules) while producing a new administrative data stream about placements—a change that affects child-welfare agencies, courts, foster families, tax preparers, and the IRS.
At a Glance
What It Does
Establishes a refundable foster‑care tax credit and adds a new IRS information-reporting requirement for placement agencies and courts; it also builds in anti‑fraud restrictions and directs HHS/Treasury outreach and a study on emergency/short‑term placements.
Who It Affects
Foster caregivers (including kinship providers) who claim the credit, state and tribal placement agencies and courts that must file placement returns, tax return preparers who must meet due‑diligence rules, and the IRS and HHS for administration and outreach.
Why It Matters
The bill delivers direct cash support through the tax system while creating new verification and reporting work for child‑welfare actors and the IRS. That combination can cut out‑of‑pocket costs for caregivers but raises privacy, compliance, and administrative-capacity questions for agencies and courts.
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What This Bill Actually Does
The bill inserts a new section into the Internal Revenue Code that allows a refundable foster‑care tax credit for eligible taxpayers who have a qualifying foster child placed in their home during the taxable year. The credit amount is fixed per eligible taxpayer and the statute specifies who counts as an eligible taxpayer and a qualifying foster child.
The credit cannot be taken for any dependent for which the taxpayer also claims the child tax credit under section 24 (although the taxpayer may elect to forgo the child tax credit so the foster credit applies instead). The statute defines a qualifying foster child to be an eligible foster child under existing dependency rules who is under age 17 and is a U.S. citizen, national, or resident.
The credit phases down for higher‑income taxpayers using a formula tied to the taxpayer’s modified adjusted gross income (MAGI). The bill defines MAGI for this purpose to mean adjusted gross income increased by certain excluded foreign income.
It also treats a placement that lasts more than 15 consecutive days in a calendar month as a full calendar month for eligibility calculations. The bill imposes strict post‑claim consequences: where a prior claim was found fraudulent, the taxpayer is barred from claiming the credit for a long disallowance window; a shorter disallowance applies where the earlier claim resulted from reckless or intentional disregard.To enable verification the bill creates a new information‑reporting obligation for authorized placement agencies and courts.
Agencies and courts must file a return (in a form the Treasury prescribes) listing, for each qualifying foster child placed during the calendar year, the child’s name, the names, addresses and TINs of the individuals with whom the child was placed, and the dates of the placement. Those filers must also furnish statements to the foster parents summarizing the same information by January 31 of the year following the calendar year of placement.
Existing assessable‑penalty provisions apply to failures to file or furnish these reports, and tax‑return preparer due‑diligence penalties are extended to improper claims of the new credit.The bill’s effective date applies to calendar months beginning after December 31, 2024. It also directs the Secretary of Health and Human Services, working with Treasury, to identify other tax provisions that can help foster families and to expand outreach and educational materials for state and tribal agencies and foster families (with an appropriation authorization).
Finally, HHS (with Treasury) must study the costs and documentation/verification challenges associated with multiple emergency and short‑term placements and report to Congress within a year.
The Five Things You Need to Know
The credit is a single refundable amount allowed to each eligible taxpayer who has a qualifying foster child placed in their home during the taxable year.
A placement that lasts more than 15 consecutive days in a calendar month is counted as a full calendar month for purposes of meeting the placement requirement.
The credit is phased out based on modified adjusted gross income; the statute specifies separate phaseout thresholds by filing status and uses a $17,000 range to calculate the reduction.
Authorized placement agencies and courts must file an information return showing the foster parent’s name, address, TIN, the foster child’s name, and placement dates, and must furnish a statement to the foster parents by January 31 following the calendar year of placement.
The bill bars future claims for taxpayers whose prior claims were proven fraudulent (10‑year bar) or reckless/intentional (2‑year bar), and it extends preparer due‑diligence and existing assessable penalties to the new reporting and credit claims.
Section-by-Section Breakdown
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Creates the Foster Care Tax Credit and sets eligibility, reductions, and disallowance rules
This provision inserts a new Sec. 36C into the tax code that does three things: it defines who is an eligible taxpayer and what counts as a qualifying foster child; it sets a fixed refundable credit amount and a MAGI‑based phaseout formula; and it attaches post‑claim restrictions where prior claims were fraudulent or made with reckless disregard. Practically, the provision ties eligibility to placement duration and to dependent‑status rules, prescribes the MAGI definition to be used, and allocates responsibility for demonstrating eligibility when a prior claim has been challenged under deficiency procedures.
Defines qualifying foster child, age limit, citizenship, and how partial months count
The bill references existing dependency law for the base definition of an eligible foster child, then narrows eligibility to children under age 17 who are U.S. citizens, nationals, or residents. It includes a specific rule that if a foster child resides in the caregiver’s home for more than 15 consecutive days of a calendar month it counts as a full calendar month, which clarifies borderline placement situations but creates an administrability hinge point for short stays.
Specifies income thresholds, the MAGI definition, and the reduction calculation
The credit is reduced when a taxpayer’s MAGI exceeds statutorily specified threshold amounts by applying a proportional reduction over a specified $17,000 range. The bill explicitly increases AGI by amounts excluded under certain international income provisions when computing MAGI for the phaseout. That choice affects taxpayers with excluded foreign income and clarifies the base for means‑testing the benefit.
Anti‑fraud, deficiency consequences, and cross‑code fixes
The statute creates multi‑year disallowance periods for taxpayers whose prior claims were fraudulent or reckless, requires taxpayers who lost a claim through deficiency procedures to provide additional documentation before regaining eligibility, and inserts conforming language across penalty and deficiency provisions so the new credit is covered by existing IRS audit and collection mechanisms. It also amends preparer due‑diligence rules to reach preparers who facilitate improper claims of this credit.
Placement agencies and courts must report placements and furnish statements
This new reporting section requires authorized placement agencies and courts to file returns, in Treasury‑prescribed form, listing each qualifying foster child placed during the calendar year and the names, addresses and TINs of the individuals with whom the child was placed and the placement dates. The filers must furnish statements to those caregivers by January 31 following the calendar year. The bill ties failures to file or furnish to existing assessable‑penalty code sections, placing the same monetary risk framework on placement actors as other IRS reporting regimes.
Effective date, outreach, and HHS study on emergency/short‑term placements
The credit and reporting provisions apply to calendar months beginning after December 31, 2024. HHS (with Treasury) must identify helpful tax provisions, expand outreach and materials for state/tribal agencies and foster families, and is authorized to receive appropriations to do so. Separately, HHS (with Treasury) must study the financial burdens and verification challenges associated with emergency and very short placements (less than one week) and report to Congress within one year.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Foster caregivers and kinship providers — they receive direct refundable cash support that offsets the out‑of‑pocket costs of fostering and is available even if the caregiver has little or no federal income tax liability.
- Low‑income foster families in particular — refundability means the benefit can reach households that don't owe income tax, improving support where budgets are tight.
- HHS and Treasury policymakers — the information‑reporting stream gives federal agencies a more consistent data feed about placements to inform outreach, program design, and the required HHS study.
- Advocacy groups and service providers — clearer tax guidance and federal outreach can make it easier to advise foster families about tax options and complementary benefits.
Who Bears the Cost
- Placement agencies and family courts — they must collect TINs and placement dates and file annual returns and furnish statements, creating new administrative and recordkeeping work that many agencies (especially smaller or underfunded ones) will need to absorb or outsource.
- The IRS and HHS — both agencies will incur onboarding, enforcement, and outreach costs to implement the credit, process information returns, handle disputes, and secure sensitive data.
- Tax return preparers and payroll/tax software vendors — the bill expands due‑diligence obligations and will require software updates and process changes, raising compliance and development costs.
- Foster parents in privacy‑sensitive situations — furnishing children’s and caregivers’ TINs and placement dates into federal reporting systems raises privacy and data‑security burdens that may impose non‑monetary costs on caregivers and children.
Key Issues
The Core Tension
The central dilemma is between delivering simple, refundable cash support to foster families and the verification, privacy, and administrative burdens required to prevent fraud: giving money too easily risks improper claims and program abuse; demanding thorough verification risks erecting compliance costs and privacy exposures that blunt access or stress underfunded placement agencies.
The bill deliberately routes support to foster caregivers through the tax code rather than through direct grants, which simplifies cash delivery for some families but requires verification and creates interactional complexity with existing tax credits. Implementation of the agency/court reporting requirement raises immediate operational questions: many placement agencies and courts do not currently collect TINs for caregivers or maintain placement data in a format fit for IRS returns.
Building that capability will cost time and money and in some jurisdictions may collide with state privacy or child‑welfare confidentiality rules.
Privacy and data‑security risk is a real tradeoff. The law requires names, TINs, and placement dates to be transmitted and stored; those fields are highly sensitive when tied to children in foster care.
The statute attaches penalties to noncompliance, which incentivizes reporting but also risks punitive outcomes for agencies that fail to meet filing requirements because they lack capacity rather than bad faith. Finally, the credit’s eligibility and month‑counting rules (for example, treating stays of more than 15 consecutive days as a full month) are administrable but could create edge‑case incentives and leave short emergency placements—precisely the placements the bill asks HHS to study—without direct tax relief.
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