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What is a Personal Exemption?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 10 December 2016
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A personal exemption is an exemption which someone can claim on a tax return to reduce taxable income. People may claim personal exemptions for themselves and may also be able to claim exemptions for spouses and certain other people in a household. In addition, people are entitled to such exemptions for each dependent in their care. The amount of the personal exemption is adjusted periodically for inflation.

The idea behind personal exemptions is that the government believes that people should not be taxed on income below subsistence level. Thus, a certain amount of income is set beyond taxation with the use of a personal exemption. There are also other exemptions available which people may be able to claim to reduce their taxable income even further. The amount of the personal exemption is notably usually well below the poverty level, but no proposals to increase it have been floated under the argument that when combined with other exemptions, the total amount of income exempt from taxation can reach or exceeds the poverty level.

In order to claim a personal exemption, the taxpayer cannot be claimed as a dependent on someone else's tax return. It is important to note that in the eyes of tax agencies, whether or not someone is actually claimed as a dependent is irrelevant; if there is a possibility that someone could be considered a dependent, she or he is not eligible for a personal exemption.

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The amount of the personal exemption also shrinks with income and is eventually phased out altogether. People who make over a certain amount of money each year cannot claim this exemption to reduce their taxable income. However, numerous other tax tricks are available to reduce tax liability. For example, wealthier people are more likely to be making payments on a mortgage, and mortgage interest is tax deductible. The ceilings at which this exemption is no longer available are also periodically adjusted.

Tax forms include a line for the personal exemption which notes the current amount of the exemption for the convenience of the taxpayer's calculations. People who are not sure about whether or not they are eligible or who want to know what the amount of current personal exemption is can contact a tax agency for more information. In the United States, for example, the Internal Revenue Service (IRS) maintains an extensive website with current tax information and tax tips to help people file their taxes successfully and without error.

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