My dependent put an incorrect exemption on her W2 of 1 and has filed her 2016 taxes and already received a refund. How do we correct this as I am not able to file.

The mistake was not in claiming the exemption of -1- at work, it was during the filing of her taxes. If she prepared her taxes through TurboTax she would have seen a Yes/No question in the Personal Information section that says "Someone Else can claim me as a Dependent". If she answered No to this questions and filed the return the IRS will reject all subsequent returns where someone else attempts to claim her as a dependent since she has already claimed her own exemption.

To rectify this issue you have the following choices;

1. File an amendment (Form 1040X) to your dependent's Tax Return to remove her exemption. Please keep in mind an amendment can take weeks, or months in some cases, for the IRS to process. This means that to safely file before April 18, 2017 you must request an extension for your Tax Return while you wait for the IRS to accept her amendment. Upon acceptance from the IRS of her amendment you can safely file your return and claim her as a dependent.
2. The second choice would involve amending both returns. You would file your return by April 18, 2017 but without listing her as a dependent. When her 1040X is accepted by the IRS you would subsequently file an amendment to your return where you would claim her as a dependent.
3. The only other option would be to do nothing and lose a dependent exemption for this year on your taxes.

I would advise to take the first choice. It is the least complicated route and in my experience the quickest way to rectify this issue.

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