What Happened to the IRS Personal Exemption?
The personal exemption was once a key tax deduction. Understand the tax code's shift to new relief methods and where the old rules may still apply.
Tax deductions and exemptions lower a taxpayer’s taxable income and overall tax liability. For many decades, the personal exemption was a feature of the U.S. federal tax system, allowing taxpayers to subtract a set amount from their income for themselves, their spouses, and any dependents before a legislative overhaul.
Understanding the Personal Exemption
The personal exemption was a fixed dollar amount that taxpayers could subtract from their adjusted gross income (AGI) for each person supported by that income. A taxpayer could claim one exemption for themselves and, if filing jointly, one for their spouse. The rules also allowed for an additional exemption for each qualifying dependent.
Both the personal and dependency exemptions were valued at the same monetary amount. For the 2017 tax year, the final year it was available, the value of each exemption was $4,050. A married couple with two children, for example, could have claimed four exemptions totaling $16,200.
The exemption amount was indexed for inflation, meaning it would typically increase slightly each year to account for the rising cost of living. The benefit of the personal exemption was also subject to a phase-out for higher-income taxpayers, so its value would decrease as income surpassed certain thresholds.
The Elimination of the Personal Exemption
The personal and dependency exemptions were eliminated as part of the Tax Cuts and Jobs Act of 2017 (TCJA). The TCJA removed this deduction by reducing the exemption amount to zero, effective for the 2018 tax year and continuing under current federal tax law.
The suspension of the personal exemption is not permanent and is tied to the longevity of the TCJA’s individual tax provisions. Under the law as written, the personal exemption is scheduled to be reinstated after the 2025 tax year. Unless Congress passes new legislation to extend the current rules, the personal exemption could return, adjusted for inflation from its 2017 level.
Current Tax System Alternatives
To offset the removal of the personal exemption, the TCJA altered other parts of the tax code, most directly by nearly doubling the standard deduction. For example, in 2017, the standard deduction for a single filer was $6,350; for 2025, it is $15,000. For married couples filing jointly, the amount increased from $12,700 to $30,000.
Changes to tax credits for families were another component of the new structure. The Child Tax Credit (CTC) was doubled from $1,000 to $2,000 per qualifying child. The law also increased the refundable portion of the credit, which for the 2025 tax year is valued at up to $1,700 per child.
A new tax provision, the Credit for Other Dependents, was also introduced. This provides a non-refundable credit of up to $500 for each qualifying dependent who does not meet the requirements for the Child Tax Credit, such as children over 16 or other relatives.
Remaining Relevance of the Exemption Concept
Despite its elimination from the current federal tax return, the concept of the personal exemption has not vanished. Taxpayers filing a late return for a tax year prior to 2018 must use the rules from that year, calculating exemptions based on the applicable regulations, such as $4,050 per person for 2017.
The concept also remains relevant at the state level. Not all states conform their income tax laws to federal changes, so some state income tax systems continue to offer a personal or dependency exemption. Taxpayers in these locations may claim an exemption on their state return.