Legal Definitions - personal exemption

A personal exemption was a specific amount of money that a taxpayer could subtract from their adjusted gross income for themselves, their spouse, and each qualifying dependent when calculating their federal income tax liability. This deduction reduced the amount of income subject to tax, thereby lowering the overall tax bill. While personal exemptions were set to zero under the Tax Cuts and Jobs Act of 2017 for tax years 2018 through 2025, the concept illustrates a historical mechanism in tax law for reducing taxable income based on the number of individuals supported by a taxpayer.

• Example 1: Single Individual Filing Taxes

  Before the tax law changes, Sarah, a single professional, filed her income taxes. She was able to claim a personal exemption for herself. This meant that a fixed dollar amount, such as $4,050 in 2017, was subtracted from her adjusted gross income before her tax liability was calculated. This reduction directly lowered the portion of her income that was subject to taxation, resulting in a lower overall tax bill.

• Example 2: Married Couple with Dependents

  Consider Mark and Lisa, a married couple with two young children, filing their joint tax return in 2016. They would have claimed a personal exemption for Mark, one for Lisa, and one for each of their two children. This allowed them to deduct four separate personal exemptions from their combined income, significantly reducing their total taxable income. By accounting for each individual in their household, the personal exemptions helped to lessen their overall tax obligation.