A personal exemption was an amount set by the IRS each year that an individual could deduct from his or her reported taxable income when calculating income tax liability. Congress eliminated this exemption in 2017, to take effect in the 2018 tax year. Each taxpayer was allowed one personal exemption. An additional exemption was allowed for each qualified dependent that the taxpayer could claim. A dependent is considered by the IRS to be a parent, child, sibling or other relative who lives with the taxpayer and who receives at least half of his or her financial support from the taxpayer. If a taxpayer claimed the personal exemption of a dependent, then the dependent could not claim the exemption on his or her own tax return.
The personal exemption was gradually phased out for those taxpayers reporting higher adjusted gross income thresholds. The threshold for phasing out the exemption differed, depending on whether a tax return was a joint, individual, or head of household return.
The personal exemption was in addition to any standard or itemized deductions made by the taxpayer. The standard deduction was a fixed amount set by the IRS. Alternatively, if a taxpayer had a sufficient amount of qualifying expenses, he or she could choose to itemize these deductions instead of taking the standard deduction.
The amount of the personal exemption was adjusted periodically in accordance with changes in the inflation rate.