When a person is a qualifying child or qualifying relative of more than one taxpayer, only one taxpayer can claim that person as a dependent. It may seem advantageous to both taxpayers to have one claim the dependent on a federal return and the other claim the dependent on a state tax return. However this may result in both state returns being rejected.
Dependent for Federal Taxes
In a joint custody situation, it is common to alternate years, so one parent will claim a child as a dependent during the even-numbered years and the other parent will claim the child during odd-numbered years. When there is no such agreement or the person is a qualifying relative of two taxpayers who are not both her parents, a tiebreaker rule may be applied. For example, an unmarried couple living together with their child could each qualify to claim the same child as a dependent. Also, a child living with her mother and grandmother may be claimed by either relative.
The IRS as created tiebreaker rules to determine who can claim a dependency exemption for a qualifying relative of more than one taxpayer. If only one taxpayer is the child's parent, that parent is entitled to the exemption. If a child lives with her mother and grandmother, the mother would be entitled to the exemption. If both taxpayers are the child's parent, the dependency exemption would go to the parent whom the child lived with the longest during the year. If the child lived with both parents the same amount of time, the exemption would go to the parent with the highest adjusted gross income.
The taxpayer not only gets the benefit of claiming the dependency exemption, but may also be eligible to claim a child tax credit, dependent care expenses, head of household filing status and an earned income credit for that dependent. The other taxpayer would not be able to claim any of these items for that same dependent. The taxpayer claiming the dependent would also get to claim the same dependent on the state income tax return.
Federal and State Exemptions
Dependents claimed on the federal and state income tax returns for a given year need to match. For example, in the state of Illinois you must prepare your federal income tax return before preparing your state income tax return. The instructions for filing a state tax return in Illinois require using numbers directly from your federal income tax return for adjusted gross income, federally tax-exempt income and dependency exemptions. Review your own state filing requirements to determine how to file in that state.
Dawn Aldridge has worked in accounting and business since 2004. Her diverse experience includes public, small business and government accounting, as well as logistics and inventory management. She holds an MBA from the University of Illinois at Springfield.