Giving up the personal exemption, not the EIC credit

I have seen this exact error twice in the past two weeks when reviewing the prior year tax returns for new clients.  Divorced parents swapping “claiming the kids” as part of the divorce settlement, trading 8332′s granting the exemption to the noncustodial parent. The prior year tax preparer totally left the second child off of the custodial parent’s tax return, costing the custodial parent significant refund dollars on the Earned Income Credit.

Form 8332 releases the right to claim the dependency exemption for a child. This does affect the calculation of the Child Tax Credit, but the Earned Income Credit follows it’s own checklist that does not require you claim the dependency exemption to include the child in the evaluation of the credit.

All tax professionals worth paying to do your tax return should be on the lookout for this, but if you totally leave your second child off of Turbo Tax, I doubt it has any basis for asking you about adding additional children that you’re not claiming the dependency exemption for.  Be careful on this part of your tax return, don’t cost yourself significant refund dollars.  If you’re unsure about how this should be done on your tax return, seek the help of a professional such as myself.  Also remember that you can amend up to 3 years of tax returns if you discover this error has been going on for a while.