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Under
United States tax law The United States of America The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. st ...
, a personal exemption is an amount that a resident taxpayer is entitled to claim as a
tax deduction Tax deduction is a reduction of income that is able to be tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of ...

tax deduction
against personal income in calculating
taxable income Taxable income refers to the base upon which an income tax system imposes tax. In other words, the income over which the government imposed tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. Th ...
and consequently
federal income tax Income taxes in the United States are imposed by the Federal government of the United States, federal government, and most State governments in the United States, states. The income taxes are determined by applying a tax rate, which Progressive ...
. In 2017, the personal exemption amount was $4,050, though the exemption is subject to phase-out limitations. The personal exemption amount is adjusted each year for inflation. The
Tax Cuts and Jobs Act of 2017 The Tax Cut and Jobs Act of 2017 (TCJA) is a congressional revenue act of the United States signed into law by President Donald Trump Donald John Trump (born June 14, 1946) is an American politician A politician is a person active in ...
eliminates personal exemptions for tax years 2018 through 2025. The exemption is composed of personal exemptions for the individual taxpayer and, as appropriate, the taxpayer's spouse and dependents, as provided in
Internal Revenue Code The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large The ''United States Sta ...

Internal Revenue Code
at .


Overview

Section 151 of the
Internal Revenue Code The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large The ''United States Sta ...

Internal Revenue Code
was enacted in August 1954, and provided for deductions equal to the "personal exemption" amount in computing taxable income. The exemption was intended to insulate from taxation the minimal amount of income someone would need receive to live at a subsistence level (i.e., enough income for food, clothes, shelter, etc.). In addition to personal exemptions, taxpayers may claim other
deduction
deduction
s that further reduce the level of income subject to taxation. Generally speaking, for tax years prior to 2018, a personal exemption can be claimed by the taxpayer and qualifying dependents. A personal exemption may also be claimed for a spouse if (1) the couple files separately, (2) the spouse has no
gross income For households and individuals, gross income is the sum of all wages A wage is the distribution from an employer Employment is the relationship between two party (law), parties, usually based on a employment contract, contract where wo ...
, and (3) the spouse is not the dependent of another, §151(b). For taxpayers filing a joint return with a spouse, the Treasury Regulations allow two personal exemptions as well. If a taxpayer could be claimed as a dependent by another taxpayer (regardless of whether anyone actually claims them), he or she cannot claim a personal exemption for himself or herself. In computing taxable income, taxpayers may claim all personal exemptions for which they are eligible under §151, and deduct that amount from the
adjusted gross income In the United States income tax system, adjusted gross income (AGI) is an individual's total gross income For households and individuals, gross income is the sum of all wages A wage is the distribution from an employer Employment is th ...
(AGI).


Phase-out

The personal exemptions begin to phase out when AGI exceeds $309,900 for 2017 joint tax returns and $258,250 for 2017 single tax returns. Each tax exemption is reduced by 2% for each $2,500 by which a taxpayer's AGI exceeds the threshold amount until the benefit of all personal exemptions is eliminated. In 2017, the personal exemption amount was $4,050, and it began to phase out at, and reached the maximum phaseout amount after, the following adjusted gross income amounts:


Dependent requirement

Section 152 of the code contains nuanced requirements that must be met before a taxpayer can claim another as a dependent for personal exemption purposes. The general rule is that a personal exemption may be taken for a dependent that is either a qualifying child or a qualifying relative. § 152(a). However, there are several exceptions to this rule. Taxpayers who are claimed as dependents of others cannot themselves claim personal exemptions for their qualifying dependents. § 152(b)(1). Married individuals who file joint returns cannot also be claimed as dependents of another taxpayer. § 152(b)(2). Non-U.S.-Citizens or nationals of other countries cannot be claimed as dependents unless they also reside in the U.S. or in contiguous countries. § 152(b)(3). However, taxpayers who are also U.S. citizens or nationals may claim as a dependent any child who shares the taxpayer's abode and is a member of the taxpayer's household. ''Id.''


Qualifying children as dependents

Qualifying children must first be "children" in the sense of § 152(f)(1). The term "children" includes adopted children, children placed for adoption, stepchildren, and foster children. Id. Qualifying children must have the same principal place of abode as the taxpayer for more than one-half of the year and must not have provided more than one-half of their own support. § 152(c)(1). They can include a taxpayer's children, a taxpayer's siblings, half-siblings, or step siblings, or the descendants of a taxpayer's children, siblings, half-siblings, or step siblings. §§ 152(c)(2), (f)(4). They may not have reached the age of 19 by the close of the year, unless they are students, in which case they must not have reached the age of 24, or unless they are permanently and totally disabled. § 152(c)(3). A child cannot qualify as a dependent on more than one tax return, so the code has a set of rules to prevent this from happening. § 152(c)(4). The code first attempts to break the tie by limiting eligible taxpayers to the child's parents, followed by the contending non-parental taxpayer with the highest adjusted gross income. ''Id.'' If more than one parent attempts to claim the child and they do not file a joint return, the code first attempts to break the tie in favor of the parent with whom the child resided longest during the taxable year. ''Id.'' If that does not break the tie, the parent with the highest adjusted gross income wins the right to claim the child as a dependent. ''Id.'' For the treatment of children of divorced parents, see § 152(e). For a case in which children are missing and presumed kidnapped, see § 152(f)(6)...


Other qualifying relatives as dependents

A qualifying relative cannot be the qualifying child of any taxpayer. § 152(d)(1). The individual must have gross income less than the amount of the personal exemption. ''Id.'' The taxpayer must have provided over one-half of the individual's support. ''Id.'' The allowable relationships between the taxpayer and the qualifying relative are almost innumerable, but under no circumstances can the relationship be one that violates local law. §§ 152(d)(2), (f)(3). Included are children (in the broad sense of § 152(f)(1)), descendants of children, siblings, half-siblings, step-siblings, father, mother, ancestors of parents, stepparents, nieces, nephews, various in-laws, or any other non-spousal individual sharing the taxpayer's abode and household. § 152(d)(2). Special rules dealing with multiple support agreements, handicapped dependents, and child support are detailed at § 152(d)(3)-(5).


History

The personal exemption amount in 1894 was $4,000 ($109,277 in 2016 dollars). The income tax enacted in 1894 was declared unconstitutional in 1895. The income tax law in its modern form—which began in the year 1913—included a provision for a personal exemption amount of $3,000 ($71,764 in 2016 dollars), or $4,000 for married couples. ($95,686 in 2016 dollars) Over time the amount of the exemption has increased and decreased depending on political policy and the need for tax revenue. Since the Depression, the exemption has increased steadily, but not enough to keep up with
inflation In economics, inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a r ...

inflation
. Despite the intent of the exemption, the amounts are also less than half of the
poverty line The poverty threshold, poverty limit, poverty line or breadline is the minimum level of income In microeconomics, income is the Consumption (economics), consumption and saving opportunity gained by an entity within a specified timeframe, w ...
. The exemption amounts for years 1987 through 2018 are as shown at right.


Sources

* Years 1987 through 2006, Internal Revenue Service, ''Instructions for Form 1040'' (for each listed year) * Year 2007, Internal Revenue Service, Rev. Proc. 2006-53 (Nov. 9, 2006). * https://web.archive.org/web/20070102205348/http://www.taxpolicycenter.org/TaxFacts/TFDB/TFTemplate.cfm?Docid=169 * Year 1913 and 1894, http://www.answers.com/topic/income-tax, American History section * https://web.archive.org/web/20110718031608/http://www.westegg.com/inflation/ * https://www.irs.gov/publications/p501/ar02.html#en_US_2015_publink1000195627


References

{{Reflist Personal taxes in the United States