Exemptions reduce your taxable income, therefore reducing your overall tax bill. There are several types of exemptions, but personal exemptions are those you are allowed for yourself and your spouse. You can receive exemptions for your children or others who depend on you for support, but these are dependency exemptions, and are different from personal exemptions.
Your personal exemption is $3,300. If filing jointly with a spouse, citizens and resident aliens can also include their personal exemption, for a total of $6,600. Non-resident aliens may only take their own personal exemption, and not that of their spouse, unless they are residents of Canada or Mexico. If you have a spouse, but file as Head of Household because you are not legally considered married, you may be able to take your spouses exemption too.
If you file a separate return, you can only take your spouse’s exemption if they are not filing a return, had no gross income, and cannot be claimed as someone else’s dependent. In fact, you cannot take your own personal exemption if another taxpayer can claim you as a dependent. In both of these cases it does not matter whether you or your spouse are actually claimed by another person as a dependent.
After you reach a certain level of income, the amount of exemptions you can claim is phased out. Once you have determined your personal exemption, add it to your other exemptions to determine total exemptions. Use your adjusted gross income, or AGI, found on line 37 to see if your exemptions are subject to a phase-out.
The amount of AGI where the exemption phase-out begins is $112,875 for married filing separately and $225,750 for married filing jointly or a qualifying widow(er). For those filing as single, the phase-out kicks in when your AGI reaches $150,500. For head of household, it is $188,150.
You must subtract 2% of your exemption for each $2,250 of your AGI above the limit, if single, and for each $1,250 if married filing separately. You have to reduce by the full 2% for a partial amount of this number too. This is like paying for hourly parking, where if you park for 2 hours and 15 minutes, you have to pay for 3 hours.
Exemptions are part of your itemized deductions, so unless you think your exemptions will come to more than your standard deduction, you may not want to spend your time on this. However, if you have given yourself plenty of time to sort out your taxes, you should definitely calculate this amount. Head over to the IRS website to access more information about filing your individual income tax return.