You pay taxes based on your income. But before that income is calculated, the IRS allows you to reduce it based on exemptions. What is a tax exemption? A standard amount of money (defined each year by the IRS) that is not taxed. For Tax Year 2013, the standard personal tax exemption is $3,900. That means that for each person claimed on your taxes (which may include yourself, your spouse, and qualifying dependents), your taxable income will be reduced by $3,900.
Rules for Tax Exemptions
In order to claim a tax exemption you must earn income and file a tax return. In addition, nobody else may claim you as a dependent. If you are in college and file your own return, but your parents still claim you as a dependent, you cannot use your own exemption. You may claim an exemption for your spouse only if your filing status is married filing a joint return or if you are filing a separate return and your spouse does not need to file a return.
Note that exemptions are different than deductions.
Tax Exemption Phase-Outs
In tax years before 2009, the ability to claim exemptions phased out at certain income levels. There is no phase-out for 2010, 2011 and 2012. The phase out will return in 2013. Here the personal tax exemption amounts by year:
Personal tax exemption 2011: $3,700
Personal tax exemption 2012: $3,800
Personal tax exemption 2013: $3,900
The personal exemption phases out for taxpayers with the following adjusted gross income amounts, beginning in 2013:
Married individuals filing joint returns and surviving spouses: AGI Beginning Phaseout is $300,000 & Completed Phaseout is $422,500.
Heads of households: AGI Beginning Phaseout is $275,000 & Completed Phaseout is $397,500.
Unmarried Individuals (other than surviving spouses and heads of households: AGI Beginning Phaseout is $250,000 & Completed Phaseout is $372,500.
Married individuals filing separate returns: AGI Beginning Phaseout is $150,000 & Completed Phaseout is $211,250.
To see the impact of your tax exemptions on your taxes, you can use the tax calculator.
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