BY JOHN KELLY, The Imprint
Current and former foster youth will not have to pay federal income tax on coronavirus pandemic assistance payments, the Internal Revenue Service made clear in a letter to a leading legislator on child welfare issues.
In late 2020, one of the coronavirus pandemic assistance bills signed into law by former President Donald Trump included $400 million to help young adults up between age 18 and 27 who experienced foster care. The funds were distributed to states through the John H. Chafee Foster Care for Successful Transition to Adulthood, and one option for the money was to provide direct cash assistance to people in the eligible age range.
As tax season rolled around, there was some uncertainty as to whether recipients of these payments would have to report the money as taxable income on a federal return. But IRS Commissioner Charles Rettig sent a letter to Rep. Danny Davis (D-Ill.) making clear that the agency viewed these payments as exempt.
“State payments to former foster youth through the Chafee Program promote the general welfare in connection with a qualified disaster,” Rettig explained in the letter. “Therefore…the general welfare exclusion excludes these payments from individual recipients’ gross income.”
Meanwhile, the White House is including foster youth in some tax time messaging planned to promote other coronavirus-related tax benefits that are available for the 2021 tax year. The Earned Income Tax Credit was expanded to include youth who have aged out of foster care, or are homeless.