Tax Exemptions: Everything You Need to Know

Alden Wicker
Posted

This story has been updated to reflect the 2013 tax year.

Exemptions are one of the most straightforward parts of the tax code.

OK, maybe that isn’t saying much, but when it comes to navigating tax season, we take what we can get. And we also love exemptions because they put money back in our pocket.

Exemptions work in a similar way as deductions by reducing the amount of income you will be taxed on. For each exemption you take for 2013, you can deduct $3,900 from your gross income to arrive at your taxable income. So if you fall in the 10% tax bracket, that translates to $390 less in taxes.

Family Group Outdoors With Parents

You are allowed to take exemptions for:

  • Yourself (“personal” exemption)
  • Your spouse
  • Each dependent

So if you are married with three qualifying children, you can deduct $19,500 in exemptions ($3,900 x 5 = $19,500). Not bad, right? It’s a pretty easy portion of your forms to fill out, but—of course—there are some exceptions. Read on to find out more about each exemption and when you can take it.

Don’t Forget!

You need the Social Security Number for anyone you claim as a dependent, so make sure you have that in front of you when you’re ready to fill out your 1040.

Personal Exemptions

This is the exemption you can take just for being a taxpayer. It’s the government’s way of saying, “Thanks for being a contributing member of society!”

The Catch: You cannot get a personal exemption if anyone else is able to claim you as a dependent. The emphasis here is on the able. Even if they don’t take the exemption, just the fact that they are able to means you cannot claim it. (And you might want to ask them why they are letting this pass them by!) We explain who can be claimed as a dependent below, so check out that description if you are unsure, but in general, if you are being supported by someone else, you cannot take this exemption.

Spousal Exemptions

While your spouse is never considered a “dependent,” similar rules apply here. If you are filing a joint return, you can claim your spouse for an exemption.

The Catch: If you are married filing separately, you can only claim an exemption for your spouse if:

  • He/she had no gross income
  • He/she is not filing a return, and
  • No one else can claim him/her as a dependent

Dependent Exemptions

Children

If you have any children under 19 living with you, you most likely can take an exemption for each of them. If your child was permanently and totally disabled at anytime of the year, she can always be claimed as your dependent, regardless of age.

To meet this test, a child must be:

  • Your son, daughter, stepchild, foster child or a descendant (e.g. grandchild) of any of them, or
  • Your brother, sister, half brother/sister, stepbrother/sister or a descendent (e.g. niece or nephew) of any of them.

The Catch: The IRS wants to know that your kids are actually dependent on you. So you cannot claim your child as a dependent if:

  • You yourself are being claimed as a dependent by someone
  • Your child is married and filing a joint tax return (unless he/she is filing just to claim a refund of withheld tax and isn’t taking a personal exemption)
  • Your child is not a resident of the U.S., Mexico or Canada
  • Your child is over 19 and not a full-time student
  • Your child is 24 or older at the end of the year
  • Your child provided more than half of her own support
  • Your child didn’t live with you for half the year (except in cases of illness, education, business, vacation or military services, or the child was born or died during the year)
  • You are separated or divorced, and your child spends more time at your ex-spouse’s home. (Learn more about this at the IRS website.)

Relatives

But your kids aren’t the only types of dependents you can claim exemptions for. You can also take exemptions for “qualifying relatives.” A relative does not have to live with you and there is no age requirement in order to qualify, you just need to be supporting them.

The Catch: In order to be a qualifying relative, the person must:

  • Have earned less than $3,900 in gross income or unemployment benefits for the year 2013
  • Have received more than half of their support from you, in the form of food, clothing, shelter, education, medical and dental care, recreation and transportation. To figure out whether the relative meets this test, add up all the support they got during the year (including support from the state like welfare and food stamps) and compare what you contributed to see if it is more than half. (The IRS provides an example of the math.)
  • Be a U.S. resident or citizen, or a resident of Mexico or Canada
  • Not be married filing jointly

In addition to the children mentioned above, qualifying relatives could be your:

  • parent
  • sibling
  • stepparent
  • stepsibling
  • half sibling
  • grandparent
  • grandchild
  • Any in-law: son-, daughter-, mother-, father-, brother- or sister-in-law

Cousins do not count. And aunts, uncles, nephews and nieces only count if they are related to you by blood. For example, your husband’s sister’s daughter does not count if you are married filing separately, but your sister’s daughter does. However, the relationship need be present to only one of the two married persons who file a joint return. That means if you are married filing jointly, you can claim your husband’s sister’s daughter.

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Member of Your Household

What if your best friend lived with you all last year? Or your best friend’s little girl? You might be able to claim them as a dependent. They must have lived with you all year, and meet all the other requirements that apply to qualifying relative, including:

  • Have earned less than $3,900 in gross income or unemployment benefits for the year 2013
  • Have received more than half of their support from you, in the form of food, clothing, shelter, education, medical and dental care, recreation and transportation
  • Be a U.S. resident or citizen, or a resident of Mexico or Canada
  • Not be married filing jointly

More on Taxes From LearnVest

Want to know what exemptions and credits you can take? Sign up for our free Ace Your Taxes Bootcamp.
Don’t get duped into a rapid refund! Here’s what you need to know.
Tax credits are another way to lower your tax bill. Learn how to get all the ones you deserve.

  • Sarah F.

    What is the benefit to having more exemptions? I can be a 2 this year but was advised to take a 1. Was that bad advice?

    • Anonymous

      Hi Sarah, I’m assuming you’re talking about filling out your W-4 at work. I think you’ll find it helpful to read this article on withholding: http://www.learnvest.com/2012/03/youve-filed-your-taxes-now-change-your-withholding/ It clarifies the difference between exemptions and the allowances you take on your W-4, and can help you figure out if the advice you got was correct. 
      In short, if you were advised to take a 1 instead of a 2, that means you will be withholding more from each paycheck in taxes, which in turn, would mean you would owe less in taxes come next April. 

      I hope that helps! Alden

  • JP

    If you are a “single” individual, can you claim married and 9 exemptions?  Seems highly unlikely, but wanted to check.

    • AldenWicker

      You’re right JP, that is highly unlikely. In fact, that would be considered either a huge mistake or fraud by the IRS and would invite a very unpleasant audit. We don’t recommend it.  

  • Moyac79

    The person who e-file my taxes added me wrong depend,which has been claimed by other,can this be fix?

  • ZQ

    I finally convinced my employer to stop imputing the value of my partner’s health benefit she gets through my employment since she is my federal tax dependent. Payroll has redone my 2009, 2011 and 2012 w-2. I am out of luck for the years prior since it’s too late to amend these taxes. In 2010 she made $3,950 in interest income and did not qualify as my tax dependent. Everything I research says that the criteria for claiming a medical dependent and thus avoiding imputing taxes does not include this income threshhold. Instead, my partner must receive more than 50% of her support from me , live with me, be a US resident and not be claimed as someonelse’s dependent child. All these criteria are met, but my employer insists that if I didn’t claim her as a federal dependent, her benefit must be imputed into my gross wages. I live in NY, we are not married.

  • ZQ

    Sorry, I forgot to ask my question! What can I do to convince Payroll they are wrong?

  • Satish

    Hello, My fiancee and I are getting married in February 2014 and her father will claim her as a dependent as she still will be living in his house as she goes to school there. I work and live in a different state. Is it okay for him to claim her as a dependent and If I do not. Also we will not be filing a joint return. I appreciate your input. Thank you.

  • Gracie

    Can I claim a dependent on my paycheck through out the year but not on my tax return. I support my son financially through out the year, he does not live full time with me so i can not claim him on my tax return, is it okay to still claim him as a dependent on my paycheck?

  • INSANITYP90X

    We are newly married and have 1 3 year old child – If we file jointly and take exemptions for ourselves and 1 dependent for our child – how would this effect our income tax return? We have one salary of around 45k per year before taxes are taken. Any way to get a rough estimate of what we would get back?

  • anonymous

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  • seajay

    I am married and claiming 9 allowances and have 2 children (depend.)….I want to maximize the money I get in my paycheck….how many more allowances can I claim to get more money? 12? !3?

    • seajay

      12? or 13?

  • CDP

    I am recently married to a woman who has 3 children all under 18 and living at home. She claims all 3 as dependents even though I do help support them. What can I do to prove that I do provide for them too?

  • RC

    What if I worked in Saudi for a year then i came back here in US and I’ve been working for more than 4-6 months now but still eventhough i was working outside the US im still the one who’s supporting my son i want to file him as my dependent but the thing is last year since im not here in US somebody claim for my son it was my nephew but now that im here in US u think i can claim my son as a dependent eventhough we live in my nephews house.

  • lauren

    Can you remove a dependent before you receive your taxes back?

  • Julianne rose

    I am unemployed. I am married and my husband works full-time. we are expecting our first child in a little less than 3 months. so how many allowances and all should my husband claim on his tax forms for work?

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