What is a Personal Tax Exemption?
Posted by
on January 16, 2012
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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.
How you claim exemptions depends on which 1040 form you file. Of course if you use tax preparation software it will take care of this part for you.
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:
Can the personal exemption be declined on a 2011 tax return in order to keep from owing AMT? I have a huge AMT credit from 2010 and if I don’t use the personal exemption for this year, my regular taxes will be more than AMT which will allow me to use the prior year’s AMT credit. My tax accountant says however that the personal exemption is required by law to be used in the calculation of taxes owned.