Advanced Term Images gives users the ability to easily add and manage featured images for categories, tags, and custom taxonomies.
Update: As of version 1.0 this plugin no longer relies on the Advanced Term Fields framework. All functionality from that framework has been incorporated within this plugin.
Once you’ve installed and activated the plugin, you should see a new form field in your edit tags screen. (See the Screenshots tab.)
Use the native WordPress media picker to select a featured image for your term.