Certain Foster Care Payments

Dear * * *:

I am responding to your letter dated December 18, 2002, on behalf of your constituents, * * *. * * * asked about the taxation of respite care payments paid to relieve an individual foster care provider from the ongoing demands of foster care.

In general, under § 61 of the Internal Revenue Code, gross income is all income from whatever source derived, including compensation for services.

Under § 131 certain foster care payments are excludable from the gross income of a taxpayer who provides foster care. This exclusion applies only to a taxpayer in whose foster family home a qualified foster placement agency places a qualified foster individual.

Generally, payments to a respite care provider are taxable as compensation for services under § 61.

I hope this information is helpful. If you have any questions, please call * * *, at * * *.