Foster parenting can be one of the most challenging and rewarding things that you will ever do from an emotional standpoint. The IRS provides some financial benefits as well. While there are no specific tax credits for being a foster parent, foster children are allowed the same treatment as biological or adopted children in many cases. These credits are all effective for the 2012 tax year.

Child Tax Credit

The IRS allows you to take a child tax credit of up to $1,000 per child living in your home. Foster children who meet certain rules qualify you for this tax credit as well. The child must be under 17. He must not have provided more than half of his own support. You must claim him as a dependent on your tax return, and he must have lived with you for over half the year. This credit is non-refundable, meaning that it will clear your tax liability but will not cause you to get a refund.

Additional Child Tax Credit

If you are not able to claim the entire child tax credit due to the total credit being higher than your tax liability for the year, you may be able to claim the remainder of the credit as an additional child tax credit. For married taxpayers filing jointly, the additional credit is the lower of 15 percent of your income less the child tax credit threshold or any child tax credit that you could not use because the amount was over your tax liability for the year. The child tax credit threshold is generally $1,000 for each child in your household. Use IRS Schedule 8812 to calculate the refundable portion of the credit.

Earned Income Credit

The Earned Income Credit (EIC) helps low income wage earners. The credit applies to higher income filers if a qualifying child lives in the household. IRS guidelines state that a foster child is a qualifying child but must meet the same standards as other children. The child must be under age 19 at the end of the year and must not be filing a joint tax return, unless she is filing just to get a tax refund. The foster child must live with you in the United States for more than half of the year. The highest qualifying income for EIC is $42,150 with one child and $47,200 with three or more children for married people filing joint returns.

Exemption

While not a tax credit, the dependent exemption will generally reduce your tax liability. You are allowed to claim a foster child as a dependent if he meets certain tests. The rules for claiming a dependent can be complicated, but generally, if the child lived with you for over half of the year and you provided over half of his support, you can claim him as a dependent. Any foster care stipend that you receive for the child's care is considered support, so calculate support carefully and check with the IRS or a tax adviser if you are in doubt.