by Teresa Stone

Created on: March 22, 2008

There was a time when the only information required on a tax return in order to claim a dependent was the name and relationship of that dependent to the primary taxpayer on the tax return. That changed dramatically in the early 1990's after Congress passed a series of laws in 1986 reforming the federal tax code. The requirement that any person or business connected to a individual's tax return have a Social Security Number (SSN) or another suitable tax identification number was phased in over a period of five years and its effect was dramatic. Employers typically are required to have an Employer Identification Number (EIN), which the federal government issues.

Until this time the only children who had social security numbers were those who started working right away such as young actors, models, working teenagers - or minor children (those under eighteen years old) whose parents opened savings and investment accounts in their children's names. This was often done to shelter money since prior to 1986 children did not typically pay tax on investment income. Part of the 1986 tax reform was a law commonly referred to as the "Kiddie Tax" because it now requires children with investment income above a certain amount to pay tax on that money at their parent's tax rate. The rate at which they are taxed is on a graduated scale but basically parents can no longer hide large sums of money under their children's identification to avoid paying taxes. The "Kiddie Tax" is just one of the main reasons that children are now required to have a SSN almost at birth.

Prior to the requirement for a social security number for dependents under eighteen, people claimed children that didn't exist or children that belonged to someone else. Since multiple people can have the same name only a full random audit could identify the real children from the fictitious ones or those that belonged to someone else. In these audits a birth certificate was insufficient. The taxpayer had to prove that the child was still alive or actually existed and lived in the taxpayer's home under his/her care. Medical and school records as well as receipts showing items purchased to support the child were all required to prove that the child existed and was being cared for by the person claiming that child. This detailed requirement still exists in random audits today, but it's much easier for the IRS and the state revenue departments to identify real versus made-up children as well as improperly claimed dependents.

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