Federal Income Tax Exemptions and Deductions
Did you know that you don't pay taxes on the first dollars you earn? This tax-free income is called income tax exemptions and deductions.
So how much money is exempt from income taxes?
Each income tax
exemption is worth $3950- for 2014 ($3900- for 2013). How many exemptions you can claim,
depends on your filing status and how many dependents you claim on your tax return.
Note:These exemptions are only for income tax. Social Security and Medicare tax (also known as payroll taxes or self employment taxes) you start paying from the first dollar you earn.
States also have tax exemptions and deductions but the amounts are often different than those from the IRS.
You get one federal income tax exemption for yourself. Another one for your spouse if you're married and filing jointly.
can also get an exemption for your spouse if you're married and filing
separately and your spouse has no income and is not filing a tax return.
The above is true even if your spouse died during the year unless you remarried during the year.
You cannot claim an exemption for yourself if you can be claimed as a dependent. The same is true for your spouse.
Here's a unique situation:
If your spouse dies and you remarry during that same year and you have no gross income, both your deceased spouse and your new spouse can take an income tax
exemption for you if they each file a separate return. If you file a
joint return with your new spouse, only this return can claim the
An exemption for your spouse is not allowed if you get a final decree of divorce or separate maintenance by the end of the year.
For each person you claim as a dependent you get an additional income tax exemption. But if a different taxpayer can claim you as a dependent, you cannot claim any dependents yourself.
Whom can you claim as a dependent?
A qualifying child or a qualifying relative who:
Who can be your qualified child? [read more]
- is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico.
not filing a married filing joint return. Unless it is just for a
refund and they would have no tax liability if they would've filed
- is not claimed as a dependent by anyone else
Your (or your spouse's if married jointly):
son, daughter, grandson, granddaughter, great-grandson, great-granddaughter and so on
Brother, sister, niece, nephew, great-niece, great-nephew and so on
This relationship can be by blood or adoption (Step- or Half- is also allowed).
A foster child placed by an authorized placement agency is also acceptable
The child must:
- be younger than you (or your spouse) and:
under 19 years or
under 24 years AND a full-time student for at least five months of the year or
any age (even older than both you and your spouse) if permanently and totally disabled.
- not provide his/her own support.
- live with you for more than six months of the year
Exceptions are made for temporary absences and kidnapped children
Children who were born or died during the year are considered to have lived with you all year.
If you and the child's other parent are divorced, separated, or lived apart all year, you can still claim your son or daughter as a qualifying child even if he/she lives with the other parent. The other parent must sign form 8832 to allow you to be the one to claim an income tax exemption for the child.
Who can be your qualifying relative? [read more]
- Someone who cannot be a qualifying child of either you or any other taxpayer
- Your relative or a member of your household but not your housekeeper, maid, or servant.
Relatives who do not have to live with you to be your qualifying relative are, your:
Children (natural, step, foster, and legally adopted) and their descendents
Brothers or sisters (natural, half, and step)
Parents and direct ancestors
Stepmother or stepfather
Son or daughter of your sister or brother
Sister or brother of your mother or father
In-laws (including mother-, father-, sister-, brother-, son-, or daughter-)
Note: A relationship that was established by marriage will not end with death or divorce
You must provide more than half support
The person can't earn more than $3900- (unless person is disabled and has income from a sheltered workshop)
Other Income Tax Exemptions and Deductions
You can also get income tax exemptions if you or spouse are over 65 or legally blind (or both).
You also get to deduct a
based on your filing status. You can also choose to
itemize that deduction
Read on to find out more:
Updated January 27, 2015
Go to Federal Tax Deductions