What Happened to Form 1040 Personal Exemptions?

Personal and dependency exemptions were eliminated from federal tax returns beginning with the 2018 tax year as a result of the Tax Cuts and Jobs Act (TCJA) of 2017. An exemption was a specific dollar amount that taxpayers could subtract from their income for themselves, their spouse, and each of their dependents. These changes are temporary and are currently scheduled to expire at the end of 2025. The law altered individual income taxes by suspending personal exemptions and modifying tax rates, deductions, and credits.

How Exemptions Worked Before Tax Reform

Before the tax reforms took effect in 2018, the system allowed taxpayers to claim personal exemptions for the taxpayer and their spouse, and dependency exemptions for any qualifying dependents. Both types of exemptions reduced a taxpayer’s adjusted gross income (AGI), which lowered the total income subject to tax. In 2017, the final year they were available, each exemption allowed a taxpayer to deduct $4,050 from their income. For a married couple with two children, this amounted to a total deduction of $16,200.

The benefit of these exemptions was reduced for those with higher incomes through a rule known as the Personal Exemption Phase-out (PEP). For 2017, this phase-out began for single filers with an AGI of $261,500 and for married couples filing jointly with an AGI of $313,800.

The Current System of Deductions and Credits

With the elimination of exemptions, the tax code introduced a larger standard deduction and enhanced tax credits to offset the impact. The standard deduction was nearly doubled, which simplifies tax filing for many. For the 2024 tax year, the standard deduction is $29,200 for married couples filing jointly and $14,600 for single filers. This increase means fewer taxpayers find it beneficial to itemize deductions.

To address the loss of the dependency exemption, Congress expanded tax credits available for dependents. The Child Tax Credit (CTC) was increased from $1,000 to $2,000 per qualifying child, with up to $1,700 being refundable for the 2024 tax year. A new, nonrefundable credit called the Credit for Other Dependents (ODC) was also created. This provides a $500 credit for dependents who do not meet the specific requirements for the CTC, such as older children or elderly relatives.

These changes represent a structural shift from deductions to credits for dependent-related tax relief. A deduction reduces your taxable income, so its value depends on your marginal tax rate. In contrast, a tax credit reduces your final tax bill on a dollar-for-dollar basis, making it more direct.

Determining Who Qualifies as a Dependent

Even without dependency exemptions, correctly identifying dependents is a necessary step for claiming several tax benefits. These benefits include the Child Tax Credit, the Credit for Other Dependents, and filing as Head of Household. The Internal Revenue Service (IRS) provides two distinct sets of tests to determine if an individual qualifies as a taxpayer’s dependent: the tests for a “Qualifying Child” and the tests for a “Qualifying Relative.”

To be a Qualifying Child, an individual must meet five specific criteria:

• Relationship Test: The child must be the taxpayer’s son, daughter, stepchild, foster child, sibling, or a descendant of any of them.
• Age Test: The child must be under age 19, under age 24 if a full-time student, or any age if permanently and totally disabled.
• Residency Test: The child must have lived with the taxpayer for more than half the year.
• Support Test: The child cannot have provided more than half of their own financial support for the year.
• Joint Return Test: The child has not filed a joint return with a spouse for the tax year, unless it was only to claim a refund.

If an individual does not meet the tests to be a Qualifying Child, they might still be a Qualifying Relative. This category has four tests:

• Not a Qualifying Child Test: The person cannot be the taxpayer’s Qualifying Child or the Qualifying Child of any other taxpayer.
• Member of Household or Relationship Test: The person must either live in the taxpayer’s household all year or be related to the taxpayer in one of the ways specified by the IRS, which includes parents, grandparents, and in-laws.
• Gross Income Test: The individual’s income must be less than a certain amount for the year ($5,050 for the 2024 tax year).
• Support Test: The taxpayer must have provided more than half of the individual’s total support for the year.