Pandemic stimulus payments also available retroactively
Foster youth have a one-time-only opportunity this year to cash in on a tax benefit of up to $1,500. They can also reap any unclaimed stimulus benefits if they file, meaning eligible youth could receive up to $4,700 — and significantly more if they are raising children.
As part of the American Rescue Plan, which provided $1.9 trillion in coronavirus pandemic relief funding, President Joe Biden authorized a temporary expansion of the Earned Income Tax Credit (EITC) to include former foster youth who are 18 and older and living on their own.
The poverty-reducing benefit is typically only available to low-income working adults who are 25 or older, or to parents of any age.
Anna Johnson, who runs a tax assistance program with the California nonprofit John Burton Advocates for Youth, known as JBAY, said the way the EITC was set up previously disadvantaged former foster youth. Johnson and others are advocating for the one-time expansion to become permanent.
“Older adults or families claiming youth as dependents could get a tax break,” Johnson said. “But when you’re providing for yourself, you don’t have supportive family, you just get nothing.”
This year, under the time-limited expansion, young adults are eligible if they are older than 18 and spent time in foster care since at least age 14. Those who were homeless in any taxable year, and parents filing as head of household with a child living with them are also eligible.
To receive the benefit, foster youth must have a Social Security number, can’t be claimed as a dependent on anyone else’s taxes and must have an “earned income” of at least $1. Extended foster care payments or unemployment benefits do not qualify as earned income.
Working young adults ages 19 to 25 are also eligible this year, even if they haven’t experienced foster care or homelessness, as long as they meet the other requirements.
This tax break, which is designed to boost low- and middle-income households, is a “phase out” credit with an earnings cap. This means that you must make under a certain amount to qualify for the credit, and the higher your income is up to that threshold, the less cash back you can receive.
For single, childless adults, the maximum income is roughly $21,000. For parents, it ranges from $42,158 to $51,464, depending on the number of children in the home.
The EITC amount is also based on how many children live in the home. For those with no children in their care, the maximum cash back allotment is $1,502; for those with kids it can go as high as $6,728.
Another incentive for former foster youth to file — even if they have no earned income for the tax year — is to recoup pandemic stimulus payments that they may have missed out on. Stimulus checks were distributed only to tax filers, so those who haven’t historically filed their taxes likely did not receive the relief payments. If youth file their 2020 and 2021 taxes this year, they can get any of the three stimulus payments they haven’t already received. Those payments could total $3,200 or more if they have children.
Parenting former foster youth can also still claim the Child Tax Credit, which is $3,600 per child aged 5 or younger, and $3,000 for each older child.
Youth do not need to have any earned income to receive either the pandemic stimulus payments or the Child Tax Credit, so it’s in their interest to file taxes this year even if they don’t meet the income threshold that requires them to do so.
Johnson said that while the potential benefit to filing taxes is huge this year for former foster youth, finding free filing assistance is key to ensuring the money doesn’t end up depleted by costly tax preparation services.
JBAY has compiled a resource guide to help young people and their advocates better understand the available benefits and how to access them. A California-specific guide is also available in both English and Spanish. The guides outline eligibility requirements for each benefit, offer a checklist of documents youth need to file, explain which public benefits are taxable, and provide links to free tax-filing resources.
For youth in California, JBAY operates free tax filing sites in six counties. Elsewhere across the country, people can use this locator tool to find federally funded Volunteer Income Tax Assistance sites. The deadline to file taxes or request an extension is April 18.