Marcus Explains: What Is the Personal Tax Exemption?

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If you’re looking for the amount of the personal exemption for the 2019 tax year, look no further: It’s still zero and will continue to be through at least 2025 as part of the Tax Cuts and Jobs Act (TCJA), which went into effect in 2018. This law gave the US tax code a major makeover, temporarily eliminating the exemption. 

You’ve probably claimed the personal exemption before, but did you really know what it was, exactly? If not, you may want to because it’s possible for the exemption to come back onto the books one day. 

What was the personal tax exemption?

The personal exemption was a specific dollar amount that taxpayers could deduct from their total income for a given tax year for themselves and each of their qualifying dependents. In doing so, the personal exemption helped to reduce your taxable income. In 2017, the personal exemption amount was $4,050 per person. 

How did the personal tax exemption work?

Generally, you could have taken the personal exemption, as long as no one else claimed you as a dependent on their tax return. So for instance, if you were a single filer, you could have claimed one exemption for yourself. And if you had qualifying dependents, you were allowed to claim an exemption for each. 

Using the 2017 tax year as an example, if you claimed one personal exemption for yourself, that means you could deduct $4,050 from your income. This, in turn, helped to reduce your overall taxable income. 

There were exceptions, of course. Hey, it’s the IRS we’re talking about here. 

The amount of the personal exemption was subject to a gradual phaseout (read: reduction) for individuals making a certain amount of money. For example, in 2017, the personal exemption phaseout kicked in for single filers who had an adjusted gross income of $261,500 or more.   

Will the personal exemption come back?

The personal exemption isn’t banished forever. The TCJA only suspended the tax break temporarily from 2018 through 2025. If the US Congress doesn’t extend this suspension, the personal exemption could make a comeback after 2025.

This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.