Simple ... if your return is rejected because a dependent has already been claimed all you can do is print, ink sign and mail in the return to claim the dependent on your return. In a year or so a letter will go out to both parties who claimed the same child requesting that the party in the wrong amend their return. If no one voluntarily amends then the IRS sends out letters to both parties asking them for proof they are their dependent so if the other party refuses to amend their return be prepared to defend your position.
Only one parent may claim the child as a dependent. Only the parent who claims the child as a dependent can qualify to use an FSA or claim the child and dependent tax credit. Only the parent who claims the child as a dependent can use the child to qualify for EIC and head of household status. In short, you can't "split" any of the tax benefits of claiming a dependent.
Usually, the tax benefit will be larger when the parent who earns more claims the child, because they can also claim head of household status. Sometimes, if the parents who earns less will qualify for EIC, it will be better for the parent who earns less to claim the child (although they can't file as head of household if they pay less than half the overall household expenses, and the other parent must file as single if they don't claim a dependent.). The only way to know in your case is to test different combinations.
Be aware that in Turbotax, the parent who will claim the child should answer "no" to the question about a custody agreement, because this only applies to a court order between parents who are separated and live apart. And the parent who will not be claiming the child should not even list them on their return. The Turbotax interview questions are designed for parents who live apart and share custody and can lead to incorrect tax returns for parents who live together unmarried. Make sure the parent who will claim the child answers that the child lived with them "all year" (which is correct for a newborn) and don't file until you have the child's social security number.
If you look at the 1040 form under dependents, the child you do not claim should not be listed.
In TurboTax if you edit the personal information. dependents section then the 3rd child should be listed as "Non-dependent - EIC and dependent care only".
You should have entered the 3rd child this way:
If you are the custodial parent where the child physically lived for more than half the year (183 nights) then:
When you enter the dependent, you say that he/she is "Your child" (not you and your spouse if remarried),
he/she lived with you the whole year,
“no” the child did not pay more than half of his/her own support,
"yes", you have a custody agreement,
and "yes", the other parent is claiming this year.
That will give you the EIC, Child Care Credit and Head of Household filing status if you otherwise qualify.
The child would be listed as "non-dependent EIC & Dependent Care only".
The other (non-custodial) parent can claim the child’s exemption and child tax credit only and needs a signed 8332 form to do so.
If you claimed the dependent in error then you need to amend to enter correctly. It will take about 4-6 months to process the mailed amended return. The non-custodial parent can only mail file this year.
