The Internal Revenue Service (IRS) allows you to reduce taxable income with an exemption for each child you claim on a tax return. If you do not file a joint return with your child's other parent, then only one of you can take the exemption. When both parents claim the exemption, the IRS will usually allow the exemption for the parent that the child lived with the most during the year.
The article below is accurate for your 2017 taxes, the one that you file this year by the April 2018 deadline, including a few retroactive changes due to the passing of tax reform. Some tax information below will change next year for your 2018 taxes, but won’t impact you this year. Learn more about tax reform here.
Qualifying child requirements
Unless you and your spouse file a joint tax return, a child can only be a claimed as a dependent by one parent. This requires that the child doesn't provide more than half of their own financial support and reside with you for more than half the tax year. This only applies to children under the age of 19, or under the age of 24 if attending school full time.
Otherwise, they can't be your qualifying child, however, they might still be claimed as a dependent if they meet the test as a qualifying relative. If your child is away at school during the year, you can treat that time as if the child lives with you. In addition, you must also ensure that you are not an eligible dependent for another taxpayer. Taxpayers who qualify as dependents to someone else are ineligible to claim their own dependents.
Amending your tax return
If you erroneously claimed your child as a dependent, the Internal Revenue Code allows you to amend your tax return within three years of filing the original or within two years of paying the relevant tax, whichever is later. However, eliminating the exemption increases your taxable income and may require you to pay additional tax for that year. Although penalties may apply to the underpayment, the IRS can waive them if you can convince them that it was an unintentional error.
Eliminating exemptions during audits
If you choose not to amend your tax return, you run the risk of the IRS discovering that the same child is being claimed as a dependent on two returns. The IRS has three years from the time you file the original return to perform an examination and make additional assessments. In the event you are chosen for an audit, the agency is likely to require proof that your child either lives with you or that you have the other parent's consent.
There is the possibility that the IRS will not discover the error within the three-year period. However, if you take the exemption with full knowledge that you do not qualify, the IRS may argue that it has an unlimited amount of time to examine your return since you made a willful attempt to evade income tax.
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