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Child's ID # Required
for Exemption or Childcare Credit

There are new and harsh requirements regarding taxpayer ID numbers (Social Security numbers) for your children (or other dependents). The rules were imposed by the recently enacted Small Business Job Protection Act of 1996 and are effective for your 1996 tax return (but do not apply with respect to children born in December of 1996).

Under the old rules, you were required to provide the Social Security number for each dependent on your tax return. However, the penalty for failing to do so was just $50. Under the new rules, the cost is that you lose the dependency exemption for the individual. You also lose any child or dependent care credit you may be claiming for employment-related child or dependent care costs you incur for the individual. (These rules apply for any dependents, not just children. Of course, for most taxpayers, their children are their dependents.)

These costs are severe. For a taxpayer in the 28% federal income tax bracket, each exemption is worth $714 in 1996 (28% x $2,550), and a child care credit is typically worth $480 for each child (up to two children).

The law also changes the way the IRS can assess these amounts if you improperly claim an exemption or credit. Under the new rules, the improperly claimed exemption or credit is treated as a "mathematical or clerical" error. This allows the IRS to assess the extra amount of tax you will owe in an administratively simpler way.

This information is published for our clients and professional associates. The topics are covered briefly and in general. No final conclusions should be drawn without professional advice.

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