Foster Care Tax Credit Act

Bill Number: H.R. 2438
Origin Chamber: House
Congress: 119th Congress, Session 1
Policy Area: Taxation
Status: Introduced
Latest Action: 2025-03-27: Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Last Updated: 2026-04-17T08:07:27Z

AI-Generated Summary

Purpose

The Foster Care Tax Credit Act (H.R. 2438) aims to provide financial support to foster families by creating a new refundable tax credit in the U.S. tax code. This credit is designed to help offset the costs of caring for foster children, encouraging more families to participate in foster care programs. It also includes measures for reporting foster placements, education on tax benefits for foster families, and a study on challenges related to short-term foster care.

Key Provisions

Tax Credit Amount and Eligibility:
Eligible foster families can claim a refundable tax credit of $850 per qualifying foster child for each taxable year.
A qualifying foster child is defined as an eligible foster child (a child placed by an authorized agency or court) who is under age 17 and a U.S. citizen, national, or resident.
The child must be placed with the family for at least one month (partial months count as full if the child stays more than 15 consecutive days).
Families cannot claim the child tax credit (under section 24 of the tax code) for the same child in the same year; an election allows opting out of the child tax credit to claim this new one instead.

Income Limitations:
The credit phases out for higher-income families: it reduces gradually for incomes above $250,000 (joint filers), $150,000 (single filers), or $125,000 (married filing separately).
"Modified adjusted gross income" is used, which includes certain foreign income exclusions.

Restrictions and Penalties:
Families who previously claimed the credit fraudulently face a 10-year ban; reckless claims result in a 2-year ban.
Improper prior claims require additional proof of eligibility.
Tax return preparers must exercise due diligence (careful verification) when claiming this credit, or face penalties.

Reporting Requirements:
Placement agencies and courts must report foster child placements to the IRS, including the child's name, placement dates, and foster parents' details.
Agencies must provide statements to foster parents by January 31 of the following year.
Penalties apply for failing to report accurately.

Education and Outreach:
The Department of Health and Human Services (HHS), in coordination with the Treasury Department, must identify and promote tax benefits for foster families through outreach to state and tribal agencies.
Funding is authorized as needed for these efforts.

Study on Short-Term Placements:
HHS, with Treasury input, will study the financial burdens of multiple emergency or short-term foster placements (under one week) and challenges in documenting them.
A report must be submitted to Congress within one year of enactment.

Effective Date:
Applies to placements after December 31, 2024, for tax years starting after that date.

Significant Changes to Existing Law

Adds a new section (36C) to the Internal Revenue Code for the foster care tax credit, making it refundable (meaning families can receive a payment even if they owe no taxes).
Introduces information reporting requirements (new section 6039K) for foster placements, similar to other tax-related reporting but specific to foster care.
Amends the child tax credit rules to allow an election not to claim it for foster children, preventing double-dipping.
Expands due diligence penalties for tax preparers to include this new credit.
These changes integrate foster care support into the federal tax system without altering core foster care laws.

Potential Impacts

On Citizens: Foster families, particularly lower- and middle-income ones, could receive up to $850 per child annually, reducing financial strain from care costs like food, clothing, and supplies. This may increase foster home availability, benefiting children in need.
On Government Agencies: The IRS will administer the credit and reporting, potentially increasing administrative workload and costs (offset by refundable credit payments). HHS will handle outreach and the study, promoting better coordination between health and tax systems.
On International Relations: No direct impact, as the bill focuses on domestic U.S. foster care and tax policy.
Broader effects may include modest federal revenue loss from credits (estimated based on participation) and improved foster care stability through financial incentives.

Main Stakeholders Affected

Foster Families: Primary beneficiaries, gaining direct financial relief.
Foster Children: Indirectly benefit from more stable placements and supported caregivers.
Placement Agencies and Courts: Required to submit new reports, increasing paperwork but aiding verification.
Internal Revenue Service (IRS) and Treasury Department: Responsible for implementing the credit, processing claims, and enforcing penalties.
Department of Health and Human Services (HHS): Leads outreach and the short-term placement study.
State and Tribal Foster Care Agencies: Receive educational materials and may see increased foster parent participation.
Tax Preparers: Must verify claims more rigorously to avoid penalties.
Congress: Receives the study report to inform future policy.

Notable Legal, Constitutional, or Political Implications

Legal: Strengthens tax code enforcement with fraud penalties and reporting, ensuring credits go to legitimate foster families. No conflicts with existing foster care laws, but adds verification burdens that could face administrative challenges.
Constitutional: Aligns with Congress's power to tax and spend (Article I, Section 8), promoting general welfare through family support. No apparent free speech, privacy, or equal protection issues, though reporting requirements may raise minor data privacy concerns for families.
Political: Signals bipartisan support for foster care (introduced by Republicans but addresses a non-partisan issue). Could influence future child welfare funding debates, potentially expanding if successful, but may spark discussions on tax expenditures versus direct spending programs. The short-term study provision invites ongoing legislative review without mandating changes.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Houchin, Erin [R-IN-9]

Cosponsors (4)

Rep. Johnson, Julie [D-TX-32], Rep. Bacon, Don [R-NE-2], Rep. Pettersen, Brittany [D-CO-7], Rep. Carson, André [D-IN-7]

Recent Actions

2025-03-27: Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
2025-03-27: Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
2025-03-27: Introduced in House
2025-03-27: Introduced in House

Bill Versions

Foster Care Tax Credit Act — issued 2025-03-27 — PDF (11 pages)