Who Can Claim a Child as a Dependent for Tax Purposes?
Tips to Avoid or Resolve a Tax Audit Over Dependents
Blended families have become much more common in the current millennium, so it's not uncommon for two taxpayers to try to claim the same dependent in the same tax year. Complex family circumstances and a misunderstanding of the rules are often to blame.
It can be unclear who should claim your child if you share custody with your ex. It might also be unclear who can claim your parents if you and your siblings help support them. IRS rules are complicated and multi-layered, but they make it clear who qualifies as a dependent and which taxpayers are eligible to claim them using a basis of financial support and time spent, among other criteria.
The Effect of the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (TCJA) eliminated personal exemptions from the tax code when it went into effect in January 2018. Taxpayers can no longer claim exemptions for themselves and each of their dependents—at least through 2025 when the TCJA potentially expires. But this doesn't mean that claiming dependents doesn't offer a few nice tax breaks.
Several advantageous tax credits and a some itemized deductions depend on having one or more dependents, so expect the IRS to continue monitoring multiple tax returns that claim the same ones, even when personal exemptions aren't an issue.
Duplicate Social Security Numbers
Claiming a dependent requires entering that individual's Social Security number on your tax return. The IRS uses a computer system known as the Discriminant Inventory Function or DIF to screen returns for duplicate Social Security numbers, among other issues.
The second tax return that's filed using a Social Security number for a dependent that's already been claimed by someone else will trigger a red flag from DIF. The second filer will receive an electronic-filing error message or a notice from the IRS via USPS mail. This is your first warning that something is amiss.
What to Do If You're Flagged
First, go back to your tax return and make sure you correctly entered your dependent's Social Security number. You might have transposed numbers and inadvertently entered someone else's SSN instead.
Reach out to anyone else who might have claimed your dependent if the number is correct—such as your ex. Find out if they've claimed your dependent.
Rules for Qualifying Children
IRS rules for qualifying dependents are broken up into two categories: qualifying children and qualifying relatives.
The IRS publishes tiebreaker rules to help taxpayers determine who gets to claim a dependent. The first rule states that a qualifying child dependent can only be claimed by the taxpayer with whom the child lived for more than half the year. Two or more taxpayers can't possibly meet this test.
Other rules apply as well. The child must:
- Be related to you by blood, or be your adopted child, stepchild, or a foster child placed with you by an agency or court order. Descendants of these individuals qualify as well.
- Be younger than age 19 on the last day of the tax year, or age 24 if a full-time student. Exceptions to the age rule exist if the child is totally and permanently disabled. The child must also be younger than the taxpayer who's claiming the dependent, and the taxpayer's spouse, if married. Qualifying relatives, however, can be older.
- Cannot file a joint return with a spouse unless it's only to claim a refund.
A custodial parent can voluntarily give the dependent deduction to the other parent by providing a written release statement to the IRS on Form 8332. This sometimes happens in divorce situations.
Rules for Qualifying Relatives
A qualifying relative can't be your qualifying child, or anyone else's qualifying child, either, for that matter. A qualifying relative must have lived with you all year, although exceptions exist for parents or siblings.
A gross income limit earned by the dependent applies as well. It's $4,300 for the 2020 tax year, the return filed in 2021. This limit indexed for inflation, so it can increase a little annually.
Finally, you must have financially provided for more than half your dependent's total support needs for the year.
The IRS also allows taxpayers to waive or transfer the right to claim dependents to someone else. This situation might happen when two or more taxpayers jointly support their aging parent. They must collectively pay for more than half of that dependent's support, and the person claiming the dependent must personally contribute more than 10%.
File IRS Form 2120, the Multiple Support Declaration, to allow one taxpayer to claim a dependent who's supported by more than one person.
How the IRS Handles Dependent Audits
The IRS will first attempt to determine which taxpayer isn't entitled to claim the dependent. It will send an audit notice to that individual.
The IRS will randomly select one of the tax returns for an audit or send notices to both taxpayers if it can't determine on its own which taxpayer is eligible. It will automatically audit the other tax return that claimed the same dependent if the first taxpayer successfully defends their tax return.
Defending Your Tax Return
Send your return back to the IRS for further processing if you're sure you meet all the criteria to qualify to claim your dependent. You might also want to hire a tax professional.
Only attorneys, certified public accountants, and enrolled agents are authorized to represent you in an IRS audit.
Be prepared to provide documentation that proves that you meet all the criteria to claim your dependent. You might have to prove your relationship to the individual, or that the dependent didn't provide more than half their own financial support. The more documentation you have, the better.
Be ready to provide school or medical records to indicate that both you and your qualifying child dependent lived at the same address for more than half the year.
You might have to submit additional documentation to qualify for specific tax breaks, such as proof of child care expenses, medical expenses, or higher education expenses. Some rules for qualifying dependents for deductions and credits can be marginally different.
The IRS provides a list of acceptable supporting documents in IRS Form 886-H-DEP.
Most dependent audit procedures will take place through the mail. The IRS will send you a request for information, and you can respond by sending in copies of your supporting documentation.
What to Do If You Lose
You can appeal the IRS auditor's decision, or you can take your case to the U.S. Tax Court if you and the IRS can't come to an agreement about your dependents, but an ounce of prevention is always worth a pound of cure. Do your best to avoid getting tangled up in this sort of situation in the first place.
Address the issue of who gets to claim a dependent before everyone files their tax returns each year. Talking this over with family members can go a long way toward preventing problems.
A Bigger Problem
It's possible you might have a much bigger problem on your hands if you can't identify anyone else who claimed your dependent. Your dependent's Social Security number might have been compromised, and someone unknown to you has used it to file a tax return. This fraud can trigger an IRS computer flag.
The IRS has taken major steps against tax-related identity fraud, but it's by no means eradicated.
Notify the IRS immediately if you have reason to believe that this has happened. You can find instructions on how to handle such a situation on the IRS website, including how to file a complaint with the Federal Trade Commission, notify the major credit bureaus, and complete and submit Form 14039, the Identity Theft Affidavit, to the IRS.