Alabama Kinship Care Tax Credits: What Grandparents Raising Grandchildren Can Claim

Tax Credits Are Real Money — If You Know to Claim Them

Many grandparents raising grandchildren don't realize they can claim the child on their federal tax return. The tax benefits available to kinship caregivers can add up to thousands of dollars a year — often more than the monthly cash assistance from Alabama's Family Assistance program.

Alabama has no state income tax credit specifically for kinship caregivers. But federal tax benefits apply to Alabama residents, and they're substantial.

Child Tax Credit

The federal Child Tax Credit provides up to $2,200 per qualifying child in 2026, with a refundable portion of up to $1,700. "Refundable" means an eligible taxpayer may receive some of the credit as a refund even if no federal income tax is owed, subject to the Additional Child Tax Credit rules and limits.

To claim the CTC, you must claim the child as a dependent on your federal return. The child must live with you for more than half the year, be under 17 at the end of the tax year, and have a valid Social Security number. The taxpayer also needs a valid-for-work SSN (for a joint return, at least one spouse must have one); the credit begins to phase out above $200,000 in income, or $400,000 for joint filers.

Earned Income Tax Credit

If you have earned income (wages, self-employment) and meet the IRS rules, the Earned Income Tax Credit provides a refundable credit based on income and qualifying children. For tax year 2026, the maximum is $4,427 for one qualifying child, $7,316 for two, and $8,231 for three or more; your actual credit may be lower or zero depending on income and other eligibility rules.

The EITC does require earned income — Social Security, pensions, and disability payments alone don't qualify. But if you have even modest wages alongside retirement income, the credit may apply.

Head of Household Filing Status

A grandparent may qualify to file as Head of Household if unmarried or considered unmarried, the grandchild meets the IRS qualifying-person rules, and the grandparent pays more than half the cost of keeping up the home. This status provides a larger standard deduction and more favorable tax brackets compared to filing as Single.

The Dependency Claim Question

The key question: can you claim the child? For the qualifying-child route, a grandchild generally must meet the IRS relationship, age, residency, support, and joint-return tests. The residency test generally requires the child to live with you for more than half the year. The support test asks whether the child provided more than half of their own support, not whether you provided more than half. Other-dependent claims use different tests. If both a parent and grandparent claim a child who qualifies as a qualifying child of each, the parent has priority. If no parent claims the child, a grandparent can claim them under the tiebreaker only if the grandparent's adjusted gross income is higher than the highest AGI of any parent who could claim the child.

This gets complicated when the parent still has some contact or lived in the home for part of the year. The rules are strict and specific — getting them wrong triggers an IRS audit notice.

Child and Dependent Care Credit

If you pay for care so you can work or look for work, you may claim the Child and Dependent Care Credit for a qualifying child under 13 (or another qualifying person). Eligible care can include daycare, before/after-school care, and day camps. For tax year 2026, qualifying expenses are capped at $3,000 for one qualifying person or $6,000 for two or more; the nonrefundable credit is 20% to 50% of those expenses (up to $1,500 or $3,000), depending on income.

Filing Help

Alabama residents can access free tax preparation through VITA (Volunteer Income Tax Assistance) sites, typically located at community centers, libraries, and senior centers during tax season. AARP Foundation Tax-Aide also offers free preparation for taxpayers 50 and older.

Tax credits interact with the benefits you receive from DHR. Child-only Family Assistance payments are not taxable income, but child support counted toward the child's FA eligibility may affect other calculations. The Alabama Financial Help for Kinship Caregivers guide covers how the benefit programs and tax credits interact, so you're not leaving federal money unclaimed while navigating state assistance.

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