Figures relate to tax year 2026 (US) · 2026-27 (UK)
You take a placement, the allowance arrives, and your British return shows nothing to pay. That is exactly how the system is meant to work.
Foster carers with an American passport then find the same payments treated as a small business on the other return.
The relief that made it tax free here simply does not exist there.
Key takeaways
- Qualifying care relief usually removes the British charge entirely.
- America has no equivalent relief for the same payments.
- The payments land as self-employment income over there.
- That brings a social security charge of roughly 15%.
- A certificate of coverage can remove that charge.
- The exclusion can cover the income tax on it.
- Real expenses may be deductible on the American side.
- A fostered child rarely qualifies as a dependant.
What is qualifying care relief?
A British relief that gives every carer a fixed annual amount plus a weekly amount for each child placed. According to GOV.UK guidance for foster carers, income under that total is simply not taxed. Most carers never exceed it.
Our guide to registering for self assessment covers filing.
The threshold rises with each child and each week.
How generous is it in practice?
Generous enough that most carers pay no tax on fostering at all. The fixed amount sits in the thousands and the weekly additions build quickly. So a carer with two long placements can be well clear of any charge.
Our guide to UK state benefits covers other support.
The relief does most of the work by itself.
Why is America different?
Because the American exclusion for care payments is written around their own state schemes. Payments from a British local authority do not fit that description. So the income arrives on the return with no shelter at all.
Our guide to self-employment here covers the trade.
The wording is about American schemes.
How the two systems see the same payment
| Item | UK | US |
|---|---|---|
| Fostering allowance | Usually exempt | Taxable income |
| Fixed annual relief | Available | No equivalent |
| Per child weekly relief | Available | No equivalent |
| Status | Self-employed | Self-employed |
| Social security | Often nil | Charged unless covered |
| Expenses | Rarely needed | Deductible |
Are foster carers self-employed?
Yes in both countries, which is one of the few points they agree on. Britain treats fostering as a trade and then exempts most of the profit. America treats it as a trade and taxes the profit normally.
Our guide to IR35 for US citizens covers status.
Same status, completely different outcome.
What does that cost in America?
Income tax on the profit, plus a self-employment charge at roughly 15% on top. The second part is usually the bigger problem. So the question becomes how to remove that charge rather than the income tax.
Our guide to estimated tax payments covers paying it.
The social security charge is the real cost.
A worked example
Take an illustrative case. An American carer in Bristol with two children placed for a full year.
Total allowances come to around £28,000 and the British relief covers the lot, so nothing is taxable here.
America sees £28,000 of self-employed income, against which real household expenses can be set.
The remaining profit then attracts the self-employment charge unless a certificate of coverage removes it.
Can you remove the social security charge?
Usually yes, through the agreement between the two countries. A certificate placing you in the British system stops the American charge applying. That single document is the most valuable thing here.
Our guide to certificates of coverage covers the application.
Apply for it before the first placement if you can.
What if your British profit is nil?
That is the awkward part, because a nil British profit makes the certificate harder to argue. You may be self-employed here with no contributions due. So the position needs setting out carefully rather than assumed.
Our guide to voluntary national insurance covers contributions.
Paying voluntary contributions here can help the argument.
Can foster carers use the exclusion?
The fostering profit is foreign earned income, so the exclusion can cover the income tax on it. What it cannot do is touch the self-employment charge. So it solves the smaller half of the problem.
Our guide to Form 2555 and the exclusion covers the claim.
The exclusion never reaches the social security side.
Should you use the credit instead?
Rarely, because you probably paid no British tax on this income at all. With no foreign tax paid there is nothing to credit. So the exclusion is usually the better route for a carer.
Our guide to the foreign tax credit covers relief.
A credit needs foreign tax actually paid.
What expenses can you claim there?
A reasonable share of food, utilities, travel and the room used by the child. Britain rarely needs these because the relief already covers everything. America is where they finally earn their keep.
Our guide to rent a room relief covers household costs.
Start keeping receipts, even though Britain does not need them.
How do you work out the share?
By a sensible method you can explain, usually rooms or who sleeps where. Keep the calculation with the return so it can be repeated. Consistency year to year matters more than precision.
Our guide to splitting employment income covers allocation.
Write the method down once and reuse it.
Can you claim a fostered child as a dependant?
Rarely, because the tests require a close enough relationship and a support contribution. A child placed by a local authority and funded by it fails on support. So the credit is usually out of reach.
Our guide to the child tax credit abroad covers the credit.
The authority funds the child, not you.
Does adoption change that?
Completely, because an adopted child is your child for every American purpose. The credits open up and a separate adoption relief may apply. So the move from fostering to adoption changes the whole return.
Our guide to the adoption credit covers adoption.
Adoption changes the tax picture entirely.
What about special guardianship?
An order giving you legal responsibility sits between fostering and adoption. The British payments may still qualify for the care relief. The American answer depends on who really supports the child.
Our guide to head of household for expats covers filing status.
Each set-up needs its own look.
Does the child need a tax number?
Only if you can actually claim them, which is uncommon while they are fostered. An adopted child does need one before any credit. So the number follows the adoption rather than the placement.
Our guide to ITIN applications covers numbers.
Apply once the adoption is in progress.
What about respite and short breaks?
Short placements count towards the weekly part of the British relief in the same way. America sees the same income with no difference. So the pattern of placements changes the British relief but not the American charge.
Our guide to tax-free childcare covers childcare support.
Count every week you had a child.
Do foster carers report their accounts?
Yes, on the usual terms, and allowances paid into a British account count towards the threshold. A separate fostering account is still a foreign account. So report it like any other.
Our guide to FBAR signature authority covers the rules.
A dedicated account is still reportable.
What if you foster through an agency?
The relief works the same way whoever makes the payment, so an independent agency and a local authority are treated alike here. America sees self-employed income either way, which means the payer never changes the answer on either return.
Our guide to recruitment agency work covers agencies.
The payer does not change the answer.
What if your profit exceeds the relief?
Then you choose between the simple method and ordinary accounts for the excess. Most carers with several placements still stay under. A busy year with high rates can push you over.
Our guide to payments on account covers the bill.
Check the total before you assume the relief covers it.
Does it affect your other income?
The exempt fostering income does not use up your allowances here, which is a real advantage. America has no such protection and simply adds the profit to everything else. So it can push other income into a higher band there.
Our guide to the personal allowance taper covers bands.
The American return stacks it on top.
What records should foster carers keep?
Placement dates for every child, the allowance statements, and household costs with your sharing method. Britain needs almost none of this and America needs all of it, so keep it for the American return.
Our guide to exchange rates on a US return covers conversion.
Keep placement dates above everything else.
Why do so many carers miss this?
Because nothing in Britain tells them there is a problem. The British return shows nil and the matter feels closed. In our practice this is one of the commonest unreported incomes we meet among Americans here.
Our guide to streamlined filing covers catching up.
A nil British return hides an American one.
What if you never reported it?
The catch-up route exists for exactly this and the tax owed is often small. Fixing it while the amounts are modest is far cheaper than later. So deal with it rather than hoping.
Our guide to the cost of streamlined filing covers the price.
Most carers owe far less than they fear.
Why is the British relief so generous?
Because the state wants carers and does not want tax getting in the way. The relief is deliberately set high enough to cover a normal fostering income. So it works as intended, and almost nobody pays.
Our guide to UK marriage allowance covers other reliefs.
It is policy, and foster carers are the point of it.
Does it apply to kinship carers?
Often yes, where a council pays you to look after a relative's child. The relief follows the payment rather than the family link. So check whether your payments qualify before assuming they do not.
Our guide to elderly parents and US tax covers family care.
Kinship foster carers can qualify too.
What about a partner who also fosters?
The relief belongs to the household rather than to each person twice over. Couples share one threshold between them. America looks at each spouse separately instead. Most foster carers find this part simpler than they expected it to be.
Our guide to joint accounts for couples covers couples.
Two foster carers share one threshold here.
What if only one of you is American?
Then only that person has an American return to worry about. How the fostering income is attributed between you starts to matter. So a British spouse holding the registration can simplify things.
Our guide to a non-resident alien spouse covers mixed couples.
It matters which of you holds the registration.
Does fostering affect your benefits?
Allowances are generally ignored for most means tested support here. That is a separate system with its own rules. So do not read the tax answer across to benefits. In practice the answer is the same for nearly every carer here.
Our guide to the high income child benefit charge covers benefits.
Foster carers meet two sets of rules, not one.
Can you pay into a pension from it?
Yes, and carers often forget they can. Fostering profit counts as relevant earnings here even where no tax is due. So the pension door is open wider than people assume.
Our guide to the pension annual allowance taper covers limits.
Exempt income can still fund a pension here.
Does that work on the American side?
Less well, because income you exclude cannot support a contribution there. If you use the exclusion, the American retirement door closes. So the two choices interact more than they look.
Our guide to US retirement accounts in the UK covers plans.
Excluding income shuts the American plan.
How long does sorting it out take?
A first return takes an hour or two once the placement dates are listed. The certificate takes longer and runs on somebody else's timetable. So start that part early. So check it once and the position holds for later years.
Our guide to choosing a US-UK tax accountant covers getting help.
For foster carers the certificate is the slow part.
Is it worth fostering as an American here?
Yes, and the tax should not put anybody off. The certificate removes the main charge and the exclusion handles the rest. What it does need is a return filed each year rather than silence.
Our guide to US tax deadlines for expats covers the dates.
The paperwork stays manageable once you set it up.
How American foster carers should handle both returns
- Record the placement dates for every child you take.
- Confirm the British relief covers your total allowances.
- Expect the same payments to be taxable in America.
- Apply for a certificate of coverage where you can.
- Claim the exclusion against the income tax element.
- Keep household receipts for the American expense claim.
- Do not assume a fostered child is a dependant.
- Report the account the allowances are paid into.
Mistakes and penalties we see with foster carers
The first is assuming a nil British return means nothing to report in America, which leaves years unfiled.
The second is paying the self-employment charge when a certificate of coverage would have removed it.
The third is keeping no household records, which throws away the only deduction available.
The fourth is claiming a fostered child as a dependant when the support test plainly fails.
How US UK Tax Accountants helps
We start with the social security charge, because that is where the money actually goes for a carer.
Then we build the expense claim Britain never asked you for. Our US federal returns service covers the American filing.
If you foster here on an American passport, get in touch before the next filing season.
Last reviewed 5 November 2026. This article is general information and not personal tax advice.
Not sure where you stand?
Tell us what you hold across the US and UK. We come back with the scope and a fixed fee in writing, at no cost.
Get in TouchPrimary sources
Official guidance from the IRS, FinCEN and GOV.UK. Thresholds and rates on those pages are updated annually — check the current tax year before relying on a figure.
