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.
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 are 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
- Personal tax exemption 2014: $3,950
Here are the 2014 personal exemption phases out for taxpayers with the following adjusted gross income amounts:
- Married individuals filing joint returns and surviving spouses: AGI Beginning Phaseout is $305,050; Completed Phaseout is $427,550.
- Unmarried Individuals (other than surviving spouses and heads of households: AGI Beginning Phaseout is $254,200 & Completed Phaseout is $376,700.
To see the impact of your tax exemptions on your taxes, you can use the tax calculator.
How to Claim Tax Exemptions
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.
- Form 1040EZ: Combine the exemption amount with the standard deduction and enter on line 5 of 1040EZ.
- Form 1040A: Complete lines 6a through 6d. The total number of exemptions you can claim is the total in the box on line 6d on 1040A. Also complete line 26.
- Form 1040: Complete lines 6a through 6d.The total number of exemptions you can claim is the total in the box on line 6d. Also complete line 42.
Additional rules may apply if you or your spouse are a non-resident or a resident alien. For more information see IRS Publication 501.
More Helpful Tax Topics
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.