Getting Personal About Personal Exemptions

Are you entitled to personal and dependency exemptions on your tax return? It might be the last year you can claim the exemption for someone—say, a child graduating from college—or exemptions may be eliminated altogether by tax reforms that could be coming in conjunction with proposed rate cuts. At the very least, however, the exemptions are still available on 2016 returns.

Basic rules: Every taxpayer is entitled to claim a personal exemption for himself or herself, plus an exemption for a spouse if filing a joint tax return. The exemption amount, which is indexed annually, is $4,050 for 2016. (It will remain the same in 2017.) In addition, you may claim exemptions for each one of your qualified dependents.

To qualify for a dependency exemption, you must meet all four of the following requirements:

• You are not a dependent of another taxpayer. Individuals who are dependents are not eligible to claim dependents.

• The individual being claimed as a dependent cannot be married and filing a joint return. Exception: A married person can file a joint return and still be claimed as a dependent if the joint return claims only a refund of tax withholding or estimated tax payments and there would be no tax liability for either spouse if they had filed separate returns.

• The individual being claimed as a dependent is a citizen, national or resident alien of the United States, or a resident of Canada or Mexico.

• The dependent meets the definition of being either a qualifying child or a qualifying relative.

Generally, this means that you must provide more than half the annual support being provided to the individual being claimed as a dependent and that person must have less than the personal exemption amount in gross income subject to tax. For a child who is younger than age 19 or a full-time student younger than age 24, the gross income part of the test does not apply.

Key rules: Under the “personal exemption phaseout” (PEP) rule, the total amount of personal exemptions you may claim, including any dependency exemptions, is reduced by 2% for each $2,500 or portion thereof that your adjusted gross income (AGI) exceeds a specified dollar threshold. For 2016 returns, the threshold is $259,400 for single filers and $311,300 for joint filers.

The PEP rule was recently reinstated by the American Taxpayer Relief Act (ATRA) of 2012. At the same time, using the same phaseout ranges, ATRA revived a companion tax provision reducing itemized deductions for high-income taxpayers. Both of these tax rules could have an impact on your 2016 return.