What is a 'Personal Exemption'

The personal exemption was a federal income tax break up until 2017. The elimination of the personal exemption for tax years 2018 to 2025, was done through the Tax Cuts and Jobs Act of 2017. The exemption was earmarked for a subsistence level of income which was untaxed and gave an exemption for each person the taxpayer supported. The taxpayer could claim the personal exemption for themselves, their spouse, and qualifying dependents.

Between 2018 and 2025, there is no personal exemption due to new tax legislation. However, the standard deduction is about double for that period.

BREAKING DOWN 'Personal Exemption'

The personal exemption was figured by counting up all eligible family members and multiplying by a per exemption dollar amount as claimed by the filing status. A single filer could claim one personal exemption for themselves. Head of household filers got themselves and could claim each dependent. Those filing jointly received credit for themselves, their spouse, and each qualified dependent. Finally, married filing separately taxpayers could claim themselves, dependents and spouse, as long as the spouse had zero gross income and was not claimed as a dependent by any other taxpayer. The claim an exemption for a dependent,  they must be a qualifying child or a qualifying relative.  

The personal exemption was subject to a phaseout (PEP) that gradually reduced the personal exemption of high-income taxpayers by 2% for each $2,500 or fraction of adjusted gross income (AGI) exceeding $261,500 for single filers, $287,650 for a head of household filers, and $313,800 for joint filers.

Personal exemption was a below-the-line deduction subtracted from adjusted gross income (AGI) to reduce taxable income and, ultimately, taxes in proportion to your tax bracket. This reduction in taxable income meant its value varied with your marginal tax rate.  If you had a $4,050 personal exemption, your tax savings would be $608 in a 15% bracket and $1,418 in a 35% bracket.  This value disparity increases as the income tax become more progressive.

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