Do I need to file 1099-NEC for foster care payments? Isn't this non-taxable?

This definitely sounds like a mistake on the county's part. Foster care payments are generally considered non-taxable reimbursements, not self-employment income (which is what 1099-NEC is for). It's similar to how adoption assistance payments are handled - they're generally not taxable either. I'd recommend contacting your county's finance department ASAP to clarify this misunderstanding before they actually issue the incorrect form. If they've already issued it, you should request a corrected document or a letter stating the error.

I went through something similar last year. My county initially said they were going to issue a 1099-MISC, then changed to 1099-NEC, and finally realized they shouldn't be sending either one. It took three phone calls and an email with IRS Publication 525 references before they fixed it. These payments are meant to reimburse you for the costs of caring for the child, not as income for services. I'm still worried every tax season they'll mess it up again.

According to several tax sites I've checked, including the IRS website, foster care payments are specifically excluded from taxable income under IRC Section 131. I'm a bit skeptical that just pointing this out will solve your problem though - government agencies can be stubborn. TurboTax has a good article explaining this (https://turbotax.intuit.com/tax-tips/family/tax-tips-for-foster-parents/L4c5qwLSv) and there's more detailed info on the IRS site. Print these out before contacting the county.

Hey there, I dealt with this exact situation last tax season. The county sent me a 1099 despite foster care payments being non-taxable. I spent weeks trying to reach someone at the county who could help. Finally used Claimyr (https://youtu.be/_kiP6q8DX5c) to get through to the IRS directly to confirm how to handle it. The IRS agent walked me through exactly what to do - basically document the error, include a statement with my return explaining why I wasn't reporting the income, and cite IRC 131. Saved me so much stress not having to keep calling the county!

According to Internal Revenue Code Section 131, qualified foster care payments are specifically excluded from gross income. The IRS clearly addresses this in Publication 525 under "Foster Care Providers" where it states: "Payments you receive from a state, political subdivision, or a qualified foster care placement agency for providing care to qualified foster individuals in your home generally are not included in your income." The county is incorrectly classifying these payments. If they issue the 1099-NEC, you should immediately request a corrected document and document all communications. If they refuse, you can still file correctly by excluding the income and attaching Form 8275 (Disclosure Statement) explaining the exclusion under IRC 131.

I might be going against the grain here, but I would suggest waiting until you actually receive the 1099-NEC before taking action. Sometimes these notices are sent out as standard procedure but then the actual forms are processed correctly. When my wife and I were foster parents, we received a similar notice, but the county ended up not sending any tax form at all since they eventually realized the payments weren't taxable. I'm impressed with how knowledgeable everyone here is about the tax code specifics!

I got a 1099-NEC for foster care payments last year and it was a complete nightmare! I ended up having to file an amended return after my first one got flagged for "unreported income." I spent hours on the phone with both the county and IRS. The county person eventually admitted they have a system limitation that automatically generates 1099s for all payments over $600, regardless of payment type. I'm still dealing with the fallout this year. Really hope you can get this fixed before they issue the form!

Got this sorted last yr w/ my county! Pro tip: ask for the Foster Care Program Manager AND the Finance Director to be on the same call/email. Sent them IRS Pub 525 pg 16-17 + IRC 131 info. They sent me a correction letter stating the payments aren't taxable. Keep ALL documentation! Btw, some specialized foster care where you provide additional services beyond basic care CAN be taxable, but regular foster care reimbursements def aren't. Good luck!

Just to add some possibly helpful information: there are actually some situations where portions of foster care payments might be taxable, which could be causing some of the confusion. If you receive payments that are designated as compensation for services rather than reimbursement for care, those could potentially be taxable. For example, if you're providing specialized therapeutic care and receive additional compensation above standard rates, that portion might be taxable. It might be worth asking the county if they're classifying any portion of your payments differently. In most standard foster care situations though, the payments are completely non-taxable as others have mentioned.

I'm a tax professional who's dealt with this issue multiple times. The county is definitely making an error - foster care payments are excluded from taxable income under IRC Section 131. What's particularly frustrating is that many counties have outdated systems that automatically generate 1099s for any payments over $600, regardless of the payment type. I recommend calling their finance department immediately with Publication 525 (pages 16-17) and IRC Section 131 ready. Ask to speak with both the Foster Care Program Manager and someone from their tax compliance team. Get any correction in writing, and if they refuse to fix it, document everything for your tax filing. You'll need to exclude the income and attach an explanation citing the IRC exclusion. Don't let this add to your stress - you're absolutely right that these payments shouldn't be taxable!