The purpose of this memorandum is to clarify policy on taxable and nontaxable forms of foster care income.
The Internal Revenue Service (IRS) states in Bulletin 2014-4, Notice 2014-7 and 26 U.S. Code § 131 Certain Foster Care Payments; gross income shall not include amounts received by a Foster Care Provider (FCP) during the taxable year as Qualified Foster Care Payments or Difficulty Of Care Payments. However, there are exceptions to the exclusion of these payments:
- Age of the Qualified Foster Care Individuals,
- Number of Qualified Foster Care Individuals, and
- Type of payment received for the Qualified Foster Care Individual.
Qualified Foster Care Payments
Qualified Foster Care Payments must be included in the FCP's income when payments are received for more than:
- 5 Qualified Foster Care Individuals age 19 years or older
Difficulty of Care Payments
Difficulty Of Care Payments must be included in the FCP's income when payments received for more than:
- 10 Qualified Foster Care Individuals under age 19, or
- 5 Qualified Foster Care Individuals age 19 or older
Division of Finance and Administrative Services (DFAS) will issue a 1099-MISC for Qualified Foster Care Payments and/or Difficulty Of Care Payments paid to any FCP meeting the above criteria.
NOTE: Taxable qualified foster care payments and/or difficulty of care payments would be budgeted in a MAGI determination under the income type Career Foster Care Payments. All non-taxable qualified foster care payments and/or difficulty of care payments would be budgeted in a MAGI determination under the income type Foster Care Payments.
Service Payments for FCP
FCPs may receive payments from a Qualified Foster Care Placement Agency for services they provide. The service payments are not related to Qualified Foster Care Payments or Difficultly Of Care Payments the FCP receives. This type of income may not be excluded from gross income if taxable. The income may be taxable depending on the service code designated by Children's Division and the total amount of income received with in the tax year. DFAS will issue a 1099-MISC if required to do so by regulations set forth by the IRS.
NOTE: Taxable service payments of this type would be considered self-employment when budgeting for a MAGI determination.
When processing an application or annual review for a FCP; staff should not assume the FCP receives taxable income from a Qualified Foster Care Placement Agency. Staff must follow the guidelines outlined in policy 1805.030.15 Reasonable Compatibility when reviewing information reported by the participant. The ES will only request further clarification or verification if the information provided by the participant is in conflict with other information known by Family Support Division.
- Review this memorandum with appropriate staff.