Personal and Dependency Exemptions
No matter how bad a child is, he is still good for a tax deduction. — American Proverb
Because people with children have greater expenses than those without, the tax law reduced their tax liability by allowing them to claim exemptions for themselves and any dependents. A taxpayer who cannot be claimed as a dependent by another could claim a personal exemption, which was adjusted annually for inflation, + an additional exemption for each dependent. The personal exemption and the exemption for each dependent was equal.
However, personal exemptions have been suspended until at least 2025, and it may be suspended indefinitely since the Republicans gained control of the federal government in 2025. However, the definition of a dependent still matters for the child tax credit, the credit for other dependents, claiming medical and dental expenses for a dependent, the earned income tax credit, and for claiming the head of household or qualifying surviving spouse filing status. Many states also have exemptions for dependents, but their definition of dependents may differ from federal law.
Year | Exemption |
---|---|
2018 - 2025 | |
2017 | $4,050 |
2016 | $4,050 |
2015 | $4,000 |
The Tax Cuts and Jobs Act eliminated the personal exemption for tax years 2018-2025. However, the standard deduction was nearly doubled, the child tax credit was doubled, with up to $1400 being refundable, and a $500 credit can be claimed for some dependents who do not qualify for the child tax credit.
The Tax Effects of a Higher Standard Deduction and No Personal Exemptions
Under the new Republican tax plan, people who do not itemize deductions will receive a higher deduction because of the higher standard deduction, which more than compensates for the elimination of the personal exemption, which, for 2018, would have been $4100. For instance, for a single taxpayer, the standard deduction would have been $6500, so, combined with the $4100 for the personal exemption, would have yielded a $10,600 deduction. Under the new tax plan, with a higher standard deduction of $12,000, this single taxpayer would be entitled to an additional $1400 deduction.
Although taxpayers with children will lose the exemption for dependents, there is a new credit for dependents of up to $500 for each qualified dependent who is not eligible for the child tax credit. This credit phases out for taxpayers earning $400,000 per married filing jointly and $200,000 for everyone else.
Itemizers will receive less of a deduction. Prior to 2018, people who itemized instead of claiming the standard deduction could claim both itemized deductions + the personal exemption. By eliminating the personal exemption, itemizes will lose more than $4000 of deductions. For instance, if a single taxpayer claimed $12,000 of itemized deductions, then the taxpayer could both deduct the $12,000 + a personal exemption, which in 2018 would have been $4100. Under the new Republican tax plan, the taxpayer can only claim the $12,000 standard deduction. This won't make much difference for the wealthy, most of whom have tens of thousands of dollars of itemized deductions, but for the millions of taxpayers who claim the mortgage interest deduction, medical or dental deductions, state and local, or property taxes, charitable deductions, interest paid on money borrowed for investments, such as margin interest, or other itemized deductions, it will make a big difference.
Being able to claim a dependent child also qualifies you to claim some educational tax credits, or to deduct up to $2,500 of interest on college loans for that child. Additionally, you would qualify for a higher earned income credit.
To claim a dependent, the dependent must satisfy the requirements for a qualifying child or a qualifying relative; the main requirement is that the taxpayer claiming the dependent must have provided more than 1/2 of the dependent's support during the tax year. Even a dependent who died before year-end can be claimed as a dependent.
When claiming deductions or credits for dependents, the correct Social Security number or taxpayer identification number of each dependent must be listed on the return of the taxpayer claiming the deduction; otherwise, it will be denied.
A dependent must also meet the resident or citizen test at least some time during the year when the dependency exemption is claimed. The dependent must be a:
- citizen or resident of the United States;
- United States national; or
- resident of Canada or Mexico.
If any the dependents do not have either a social security number or an individual taxpayer identification number, then the taxpayer claiming the dependent should file Form SS-5, Application for a Social Security Card with the Social Security Administration, or Form W-7, Application for IRS Individual Taxpayer Identification Number with the IRS if the dependent does not qualify for a social security number, usually because the dependent is a resident or nonresident alien.
Historical Notes
Here is some information about past tax years:
Year | Exemption |
---|---|
2014 | $3,950 |
2013 | $3,900 |
2012 | $3,800 |
2011 | $3,700 |
2014 | 2013 | |||
---|---|---|---|---|
Filing status | Threshold Amount | Phaseout Amount | Threshold Amount | Phaseout Amount |
Single | $254,200 | $376,701 | $250,000 | $372,500 |
Head of Household | $279,650 | $402,150 | $275,000 | $397,500 |
Married Filing Jointly | $305,050 | $427,551 | $300,000 | $422,500 |
Married Filing Separately | $152,525 | $213,775 | $150,000 | $211,250 |
- Adjusted annually for inflation.
- The phaseout amount is $122,500 above the threshold amount, except for married filing separately, which is half that.
- These phaseout amounts are the same for itemized deductions.
Personal Exemption Phaseout
Before 2010, there was a phaseout of personal exemptions for taxpayers whose adjusted gross income exceeded a certain amount. However, there was no phaseout for 2010-2012, so higher income taxpayers could claim the full amount of the personal exemption for those years.
However since 2013, there was a phase-out amount for claiming personal and dependent exemptions, often called the personal exemption phaseout, or PEP, limit (aka the Pease limits):
2018 | 2017 | |||
---|---|---|---|---|
Filing status | Threshold Amount | Phaseout Amount | Threshold Amount | Phaseout Amount |
Single | $266,700 | $389,200 | $250,000 | $372,500 |
Head of Household | $293,350 | $415,850 | $287,650 | $410,150 |
Married Filing Jointly | $320,000 | $442,500 | $313,800 | $436,300 |
Married Filing Separately | $160,000 | $282,500 | $156,900 | $279,400 |
- Adjusted annually for inflation.
- The phaseout amount is $122,500 above the threshold amount, except for married filing separately, which is half that.
- These phaseout amounts are the same for itemized deductions.
- Note that the 2018 figures are no longer relevant since the Republicans eliminated personal exemptions, but these figures show what the PEP limit would have been, if the law was not changed.
The total claimable exemptions are reduced by 2% for each $2,500, or portion thereof, ($1,250, married filing separately) over the threshold amounts. To calculate the reduced exemption:
- Excess Income = Income − Phaseout Threshold Amount
- Exemption Reduction Factor = Excess Income/$2500
- Round up the Exemption Reduction Factor to the next integer, even if there is no remainder.
- So, for example, even if Excess Income/2500 = 10 exactly, then Exemption Reduction Factor = 11.
- Exemption Reduction = Personal Exemption × Exemption Reduction Factor × 2%
- Reduced Exemption = Personal Exemption − Exemption Reduction
Example: Calculating the Reduced Personal and Dependency Exemption for High-Income Taxpayers
A single taxpayer earns $302,000, so if the personal exemption = $4,000, then it must be reduced by the reduced exemption amount, calculated thus:
- Excess Income = $302,000 − $250,000 = $52,000
- Exemption Reduction Factor = $52,000 / $2500 = 20.8
- Round up to the next integer: 21
- Exemption Reduction = $4,000 × 21 × 2% = 1680
- Reduced Exemption = $4,000 − 1638 = $2362
If the taxpayer has any dependents, then only $2362 can be claimed for each one.