Exemptions reduce a taxpayer’s tax liability by being deducted from the taxpayer’s income to arrive at the taxable income to which the tax rates are applied. Married taxpayers filing a joint return are allowed at least two personal exemptions, even though only one spouse may have an income. However, if a husband and wife file separate returns, each spouse must take the exemption to which entitled on his or her own tax return. Married taxpayers who file a separate return are not permitted to claim two exemptions for a spouse, i.e. one as a spouse and one as a dependent.
The personal exemption is $4,050 for 2017 for taxpayers whose AGI does not exceed the following amounts:
Filing Status Adjusted Gross Income
Married filing jointly or qualifying widow(er) $313,800
Head of household $287,650
Single $261,500
Married filing separately $156,900
For taxpayers whose AGI exceeds the listed amounts, the personal exemption is reduced. The reduction in the exemption is equal to 2% for each $2,500 (or part of $2,500) of AGI in excess of the amounts shown in the table. Thus, personal exemptions are completely phased out in 2017 for taxpayers whose AGIs are at least as shown below:
Filing Status Adjusted Gross Income
Married filing jointly or qualifying widow(er) $436,300
Head of household $410,150
Single $384,000
Married filing separately $218,150
Personal Exemptions
Exemptions may be personal exemptions—exemptions for each of the taxpayer and spouse, in other words—or exemptions for dependents. With respect to personal exemptions, each taxpayer, unless he or she can be claimed as a dependent on the tax return of another taxpayer, may take one exemption for himself or herself. If another person is entitled to claim the taxpayer as a dependent—even if the other taxpayer does not actually claim him or her as a dependent—the taxpayer loses the ability to claim the exemption. Thus, the loss of the personal exemption occurs when another is eligible to claim the taxpayer as a dependent. A taxpayer whose filing status is “married filing jointly” may claim an exemption for himself or herself and a second exemption for a spouse. A married taxpayer whose filing status is “married filing separately” may claim an exemption for a spouse only if the spouse:
- Had no income;
- Is not filing a return; and
- Was not the dependent of another taxpayer.
Dependent Exemptions
One exemption may be claimed by a taxpayer for each person the taxpayer can claim as a dependent. The ability of the taxpayer to claim an exemption for a dependent does not depend on whether or not the dependent files a federal income tax return. Pursuant to federal law, a person is a dependent if he or she meets the qualifying child test or the qualifying relative test. The taxpayer must also meet certain tests in order to claim an exemption for a qualifying relative or a qualifying child. Those tests are:
- The dependent taxpayer test;
- The joint return test; and
- The citizen or resident test. All three tests must be met.