Personal and Dependent Exemptions
Taxpayers are allowed two kinds of exemptions—personal and dependency. Each exemption results in a $3,500 reduction of taxable income in 2008 and the amount changes each year to reflect inflationary changes.
Each taxpayer filing the return is entitled to a personal exemption—one person and one exemption in the case of a single, married filing separately, head of household or qualifying widow(er) return; two exemptions in the case of a joint return.
“Qualifying child” or “qualifying relative” dependency exemptions are allowed if three overall tests are met and then if specific tests are met. The three overall tests are (1) dependent taxpayer test, (2) joint return test, and (3) citizen or resident test. There are five specific tests to determine if a dependent is a “qualifying child”: (1) relationship, (2) age, (3) residency, (4) support, and (5) a special test for qualifying child of more than one person.
An exemption can be taken for a dependent other than a qualifying child—an exemption for a “qualifying relative” and there are four tests for this exemption: (1) not a qualifying child test; (2) member of household or relationship test; (3) gross income test; and (4) support test. Note that a person does not need to be a relative to become a “qualifying relative” exemption.
The dollar amount claimed from exemptions is reduced at higher levels of AGI. For the 2008 tax year, the reduction (phaseout) of the amount that can be claimed depends on the AGI based on filing status.
| Exemptions Phaseout | |
|---|---|
| Filing Status | AGI Phaseout Range |
| Married filing separately | $119,975–$181,225 |
| Single | 159,950–282,450 |
| Head of household | 199,950–322,450 |
| Married filing jointly | 239,950–362,450 |
| Qualifying widow(er) | 239,950–362,450 |
The reduction in exemptions is 2% for each $2,500, or part of $2,500 ($1,250 for married filing separately), that AGI exceeds the threshold amount shown in the table. If the AGI exceeds the upper phaseout amount, the reduction will be one-third of the amount claimed for personal exemptions.
Example
Carl and Deanna file a joint return and their 2008 AGI is $267,850. They claim 4 exemptions (2 personal and 2 dependent). They would need to reduce the amount claimed for personal exemptions of $14,000 ($3,500 × 4) by $1,120, resulting in a net amount claimed of $12,880. Computation of reduction:
$267,850 − 239,950 = $27,900
$27,900/2,500 = 11.16 rounded to 12
12× 2% = 24% × $14,000 = $3,360 × 1/3 = $1,120
Continuing the example, if Carl and Deanna’s AGI was $394,230 (above the upper threshold amount), the amount they could claim for exemptions is: $14,000 × 2/3 = $9,333.
Go to Publication 17 and read Chapter 3: Personal Exemptions and Dependents.
Questions and Problems
Irene, age 67, and Jim, age 66, are married and support Jim’s father (no taxable income) and Irene’s mother who has $1,200 of gross income. If they file a joint return, how many exemptions may Irene and Jim claim?
2
3
4
5
6
Deb and her sister support their mother and together provide 88% of their mother’s support. If Deb provides 40% of her mother’s support:
Her sister is the only one who can claim their mother as a dependent.
Neither Deb nor her sister may claim their mother as a dependent.
Both Deb and her sister may claim their mother as a dependent.
Deb and her sister can split the dependency exemption.
Deb may claim her mother as a dependent if her sister agrees in a multiple support agreement.
Erika is 64 years old. She supports her 84-year-old father who is blind. How many exemptions should Erika claim on her tax return?
1
2
3
4
5
Gerda and Hans are under age 65, married, with a 22-year-old daughter who lives in their home. They provide over half of her support and she earned $3,700 from a part-time job. She is not a full-time student. How many exemptions should Gerda and Hans claim on their joint tax return?
1
2
3
4
5
Which of the following tests is not a test that must be met for a child to be a qualifying child:
Gross income test
Age test
Support test
Relationship test
Residency test
Joel is a single taxpayer with two dependent children under age 17. Joel estimates his wages for the year will be $37,000 and itemized deductions will be $11,500. Assuming Joel files as head of household complete a Form W-4 to determine the number of withholding allowances Joel should claim.
# of allowances:__________
Josh and Karen are married with one 20-year-old dependent child. Josh earns a total of $47,000 and estimates their itemized deductions to be $12,500 for the year. Karen is not employed. Complete a Form W-4 to determine the number of withholding allowances that Josh should claim.
# of allowances:__________
Indicate, in each of the following situations, the number of exemptions the taxpayers are entitled to claim on their income tax returns.
Taxpayer(s) No. of exemptions a. Tatyana, a 20-year-old single taxpayer, supports her mother, who lives in her own home. Her mother has income of $1,350. b. Stan, age 45, and Stephanie, age 34, are married and support Stan’s 19-year-old sister, who is not a student. The sister’s income from a part-time job is $3,600. c. Toni was divorced during the year and receives child support of $250 per month from her ex-husband for the support of their 5-year-old son, who lives with her. Toni is 28 years old and provides more than half of her son’s support. d. Anthony, an 88-year-old single taxpayer, supports his son, who is 66 years old and earns no income. e. Wilma, age 65, and Alex, age 66, are married. They file a joint return.
