Personal Exemption: Explanation and Applications

What Is a Personal Exemption?

The personal exemption was a federal income tax break up until 2017. The Tax Cuts and Jobs Act of 2017 eliminated the personal exemption for tax years 2018 to 2025. 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.

For the 2017 tax year, the personal exemption was $4,050 per person. Unlike deductions, the personal exemption was available to all taxpayers, regardless of their expenses.

Between 2018 and 2025, there is no personal exemption due to new tax legislation. However, the standard deduction for most taxpayers has doubled for that period. The higher standard deduction eliminates the need for many taxpayers to itemize deductions. Still, it varies depending on a taxpayer's filing status and does not allow for additional exemptions for dependents.

Understanding Personal Exemptions

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. To claim an exemption for a dependent, they must be a qualifying child or a qualifying relative.

Applying the Personal Exemption

The personal exemption was available to every taxpayer who could not be claimed as a dependent on someone else’s taxes. For example, a college student who received more than half of their financial support from their parents could not claim the exemption for him or herself because his or her parents could claim him or her as a dependent. Whether or not the parents actually did so was irrelevant; because they could, the student would have been ineligible for the personal exemption.

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. It phased out altogether for taxpayers with an AGI above $436,300.

The 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 becomes more progressive.