Dependents live in Mexico

[meg4246]

The taxpayer resides in the United States, while spouse and two children currently live in Mexico. As the dependents lack a social security number, they must apply for an Individual Taxpayer Identification Number (ITIN). What documentation is required for the taxpayer to include them in their income tax filing, considering the dependents' residence in Mexico? 
What are the benefits if taxpayer includes them on his income tax return?

[DMarkM1]

It depends.  First the children must be US citizen, US national, or US resident alien to qualify for any credits.  They must also qualify as dependents according to table 5, Publication 501 (for example lived with you more than 6 months of the tax year). If they meet these two general requirements (dependents and US citizen) then with an Individual Taxpayer Identification Number (ITIN) they may qualify you for an "Other Dependent Credit" of $500.  Here is a link with more information on child tax credits. 

For your spouse, you may choose to file as married filing separate (MFS) or married filing jointly (MFJ) and she needs an ITIN in either case. If you file a joint return you will need to claim her worldwide income on your joint return.  If you file a separate return you would not include her income on your return.  So if she does not have any income (or low income) it would be a tax advantage to file a joint return for the higher standard deduction. Here is a link with more information on filing with a non-resident alien spouse.   

Finally, if you have a qualifying dependent child (with an ITIN) and you and your spouse did not live together you may file head of household (HOH) instead of MFS or MFJ. Your spouse would not need an ITIN in that case.  The standard deduction for HOH (20,800) is lower than MFJ (27,700) but higher than MFS (13,850). 

Here are links to the steps and requirements to obtain ITINs.