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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 2014, the personal exemption amount is $3,950. 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 $3,950.
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.
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 are the personal tax exemption amounts by year:
Here are the 2014 personal exemption phases out for taxpayers with the following adjusted gross income amounts:
To see the impact of your tax exemptions on your taxes, you can use the tax calculator.
Additional rules may apply if you or your spouse are a non-resident or a resident alien. For more information see IRS Publication 501.
With the tax deadline approaching, here are answers to other tax questions you might have: