Personal Exemption Rules 2023

Personal exemptions are no longer allowed as a deduction to reduce your taxable income. They did exist prior to 2017's Tax Cuts and Jobs Act (TCJA), but the TCJA suspended this tax benefit—at least for the time being. Learn more about how the personal exemption used to work, how the TCJA changed the situation, and what similar tax breaks still exist.

The Personal Exemption Was Removed in 2018

The deduction for personal exemption was suspended from the tax code when the TCJA went into effect in 2018. As with many aspects of the TCJA that affected personal taxes, however, this change is scheduled to revert to pre-TCJA status after the 2025 tax year unless Congress takes steps to renew the legislation.

Generally, you have three years from the original date of filing to amend a previous year's tax return. That means time has run out if you are seeking to amend a return for tax year 2017 or earlier.

Who Was Eligible?

All tax breaks come with a list of rules for claiming them, and personal exemptions were no exception. A taxpayer was permitted to claim one personal exemption for themselves and one exemption for each person they could claim as a dependent.

Married people who filed jointly could claim two personal exemptions, one for each spouse, plus exemptions for each of their dependents. If they filed separately, however, one spouse could claim the other spouse's personal exemption only if the other spouse met certain requirements, such as earning no gross income throughout the year.

You could not claim a personal exemption for yourself if you were someone else's dependent because that taxpayer was already claiming your personal exemption. Even if you weren't claimed as a dependent—but you or your spouse could've been claimed as a dependent by someone—you did not qualify to claim a personal exemption for yourself or your spouse.

How Much Was the Personal Exemption Worth?

Like many aspects of taxes, the personal exemption amount was indexed for inflation; it increased slightly most years to keep pace with the economy. But if the economy remained relatively steady and inflation was low, the personal exemption amount stayed the same. This happened in tax years 2016 and 2017 when it remained steady at $4,050 two years in a row.

Here's how the exemption worked out in previous years:

The Personal Exemption Amount Was Reduced Based on Income

Unlike standard deductions, which apply equally to all taxpayers, deductions for personal exemptions were subject to phaseout limits called the "personal exemption phaseout" (PEP).

Phasing out means that the exemption gradually reduces as a taxpayer's income increases. Every $2,500 a taxpayer earned above a set threshold reduced their personal exemption by 2%. The reduction could be applied fractionally to amounts that exceeded the threshold by less than $2,500. The personal exemption phased out by 2% for each $1,250 of adjusted gross income over the threshold for people who used the married-filing-separately status.

Here's an example of how this works. Suppose Darla had an adjusted gross income of $300,150 in 2017. She filed as head of household and claimed two personal exemptions: one for herself and one for her child. The relevant threshold for 2017 was $287,650 for head of household filers. Darla's adjusted gross income of $300,000 exceeded this threshold by $12,500.

Take this excess amount and divide it by $2,500, which comes out to 5. Her personal exemptions must be reduced by 2% for each $2,500, which works out to five reductions of 2%, for a total of 10%.

Darla's two personal exemptions totaled $8,100 before the reduction. Multiply that by 10% to get the reduction amount: $810. Therefore, the $8,100 exemption becomes a $7,290 exemption ($8,100 minus $810).

Exemptions Didn't Affect the Alternative Minimum Tax

Personal exemptions could only reduce federal income tax. They didn't reduce the alternative minimum tax, sometimes called the AMT. Taxable income for AMT purposes was calculated without regard to personal exemptions.

TCJA Standard Deductions

With the suspension of personal exemptions, it might seem like the average family would start handing over a lot more in tax dollars beginning in 2018. However, the TCJA nearly doubled the standard deduction, and it increased the child tax credit to $2,000 (although the child tax credit has a phaseout income threshold).

The American Rescue Plan Act, signed into law by President Biden in March 2021, increased the child tax credit to $3,600 for children under the age of 6, and to $3,000 for children age 6 through 17, for tax year 2021.

Frequently Asked Questions (FAQs)