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Among the multitude of terms associated with tax returns, “exemption” is a very endearing one, just like “deduction”!
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If you make donations to charity, you know about tax-exempt organizations; you may also know about estate and gift tax exemption; or, if you are in business for yourself, you may be aware of state, county and municipal governments tax exemptions meant to stimulate the local economy.
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This time around, we are interested in the exemptions that most taxpayers are entitled to on their tax return.
Exemptions are considered to be one of the simplest lines on your tax return, but most importantly, both exemptions and deductions can reduce the amount of income you will be taxed on.
While deductions are related to actual expenses you have paid during the tax year (and you can choose either the standard deduction without documenting any of your expenses, or the itemized deductions), exemptions relate to your filing status and to the number of dependents you have.
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As a general rule, the IRS classifies exemptions into two types:
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- Personal exemptions for yourself and your spouse, and
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While each is worth the same amount: $4,050 for 2016 and 2017, different rules apply to each type.
You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer doesn't actually claim you as a dependent. |
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Your spouse is never considered your dependent. On a joint return you can claim one exemption for yourself and one for your spouse.
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| If you file a separate return, you can claim an exemption for your spouse only if your spouse: |
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- Isn't filing a return, and
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- Wasn't the dependent of another taxpayer.
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| This is true even if the other taxpayer doesn't actually claim your spouse as a dependent. |
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| You can claim an exemption for your spouse even if he or she is a nonresident alien. In that case, your spouse: |
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- Must have no gross income for U.S. tax purposes,
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- Must not be filing a return, and
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- Must not be the dependent of another taxpayer.
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If your spouse died during the year and you file a joint return for yourself and your deceased spouse, you generally can claim your spouse's exemption.
If you remarried during the year, you cannot take an exemption for your deceased spouse.
If you are a surviving spouse without gross income and you remarry in the year your spouse died, you can be claimed as an exemption on both the final separate return of your deceased spouse and the separate return of your new spouse for that year. If you file a joint return with your new spouse, you can be claimed as an exemption only on that return. |
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| If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. This rule applies even if you provided all of your former spouse's support. |
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| As far as dependents are concerned, you are allowed one exemption for each person you can claim as a dependent. You can claim an exemption for a dependent even if your dependent files a return. |
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The term “dependent” refers to a qualifying child, or a qualifying relative. What these terms mean and how you can determine who qualifies as your dependent will be the subject of a future newsletter.
If you can be claimed as a dependent by another person, you cannot claim anyone else as a dependent. Even if you have a qualifying child or qualifying relative, you cannot claim that person as a dependent.
If you are filing a joint return and your spouse can be claimed as a dependent by someone else, you and your spouse cannot claim any dependents on your joint return.
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You generally cannot claim a married person as a dependent if he or she files a joint return.
You can claim an exemption for a person who files a joint return if that person and his or her spouse file the joint return only to claim a refund of income tax withheld or estimated tax paid.
You generally cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico. However, there is an exception for certain adopted children.
Children usually are citizens or residents of the country of their parents. If you were a U.S. citizen when your child was born, the child may be a U.S. citizen and meet this test even if the other parent was a nonresident alien and the child was born in a foreign country.
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Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally aren't U.S. residents and you cannot claim an exemption for them. However, if you provided a home for a foreign student, you may be able to take a charitable contribution deduction.
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You should also know that you may lose at least part of the benefit of your exemptions if your adjusted gross income (AGI) is above a certain amount. For 2017, the phaseout begins at the following amounts:
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Filing Status
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Phaseout Begins at AGI
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Phaseout Complete at AGI
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| Single |
$261,500
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$384,000
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| Head of household |
$287,650
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$410,150
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| Married filing jointly |
$313,800
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$436,300
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| Married filing separately |
$156,900
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$218,150
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| For every $2,500 of AGI (or portion thereof) above the beginning phaseout amount shown in the table above for your filing status, the $4,050 exemption amount is reduced by 2%. |
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The way you claim an exemption on your tax return depends on which form you file. If you file Form 1040EZ, the exemption amount is combined with the standard deduction amount and entered on line 5.
If you file Form 1040A, 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 |
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If you file Form 1040, complete lines 6a through 6d. The total number of exemptions you can claim is the total in the box on line 6d. You must also complete line 42.
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For every person who qualifies as an exemption, you’ll need to include that person’s Social Security number on your return. If these tax identification numbers are missing, the IRS could disallow the exemption claim.
If you have a dedicated tax professional, you don’t need to worry about any of this, although it is always useful just to be informed.
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