What Happens When Both Parents Claim a Child on a Tax Return?

If parents are divorced, separated, never married or live apart but share custody of a child or children then the parents should understand the rules that govern claiming dependent children as tax exemptions. The Internal Revenue Service (IRS) allows only one parent to claim a child as a qualifying dependent if the parents file separate tax returns. The default test is to award the exemption to the custodial parent or the parent with whom the child lived for a greater number of nights during the year also known as the residency test. However, in some cases, it makes sense to award the exemption to the non-custodial parent and the exemption can be allocated simply by court order or agreement and executing an IRS Form 8332 or similar document.

Problems arise if both parents claim the dependent on their tax returns. In that case, the first tax return filed with the dependent’s tax ID number will be accepted and the IRS will reject the subsequently filed tax return. However, the IRS may inquire if the non-custodial filing parent properly claimed the child especially if no IRS Form 8332 or similar written document has been received from the custodial parent authorizing the non-custodial parent to claim the child. This may result in an audit or amended tax return to remove the erroneously claimed dependent which can increase the taxable income and require the parent to pay additional taxes, fees or penalties.