Your child is now earning his own money and feeling quite independent, but when he is ready to fill out that first tax return, make sure the experience does not turn into an expensive lesson for both of you.

If your child is otherwise qualified as a dependent, and you are still providing more than half her support, she will qualify as an exemption on your return.

However, if the child fails to correctly answer the question about who is qualified to claim him, parents will not be able to claim the child on their return unless an amended return is submitted.  The 1040EZ is confusing, but your child should check the "You" box on line 5 of the 1040EZ, which reads, "If someone else can claim you (or your spouse if a joint return) as a dependent, check the applicable box below". Software packages usually present this as a question "Can someone else, such as your parents,claim you as a dependent." The child should answer "Yes".

This is not an issue of picking the most ego-satisfying or financially attractive option. The tax code is very clear on the requirements to determine when someone is a dependent. Parents cannot claim the child if they do not meet those requirements, and the child cannot claim the exemption if he is a dependent.

Although losing the exemption can cost your child some tax, it will typically cost you far more if he erroneously claims his own exemption.

For example, let's assume your child earned $6000.  If your child claimed her own exemption, the $5450 standard deduction and $3500 exemption would be subtracted from the $6000 earned, which would make tax owed zero. Unfortunately, the parents lose the $3500 exemption on their return.  Since they are at least in the 15% bracket, they will see $525 less in their refund (or pay $525 more if they owe).

If instead, the box is checked, the child loses the $3500 exemption. After subtracting the standard deduction of $5450, there would remain $550 of income that would be taxed at 10%, costing your child about $55. However, the parents gain the $525.