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Filing Taxes: What You Need to Know About Tax Exemptions

Tax exemptionsBy Alden Wicker

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 2012, you can deduct $3,800 from your gross income to arrive at your taxable income. So if you fall in the 10% tax bracket, that translates to $380 less in taxes.

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 $19,000 in exemptions ($3,800 x 5 = $19,000). 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.

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!" And good news for high earners-previously, once you made a certain amount (around $165,000 to $200,000) you wouldn't be able to take the full personal exemption, but that rule doesn't apply this year.

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

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 $3,800 in gross income or unemployment benefits for the year 2012
  • 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.
  • 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.

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 relatives, including:
  • Have earned less than $3,800 in gross income or unemployment benefits for the year 2012
  • 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

See more on LearnVest:

Don't Miss Any of These Money-Saving Tax Credits
Will You Get Hit With the Dreaded Alternative Minimum Tax?
10 Crazy Tax Laws You Need to Know

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Thank you Krystal, Tags 1960 should stop speculating that I mean federal, and get an education in life. Taxes are taxes : state or fed. Its money out of our pocket.... From the dumb old person.

February 17 2013 at 9:13 AM Report abuse rate up rate down Reply

THE END IS NEAR.........

February 17 2013 at 6:28 AM Report abuse rate up rate down Reply

Do everything under the table,..... screw the taxes

February 17 2013 at 12:54 AM Report abuse +1 rate up rate down Reply
1 reply to David's comment
Henry ptnm

I knew one guy did that. All his life, when he was working, he was getting paid under the table for work he did. When he reached 62, he filed for Social Security, he only got $200 a month. All that work and nothing to show for.

February 17 2013 at 8:09 AM Report abuse rate up rate down Reply

That they are servicing the U.N. grain trucks and lining them up.

February 16 2013 at 9:12 PM Report abuse rate up rate down Reply

E filing and direct deposit of refunds did not prove to be a good idea in SC. The state system was hacked and bank accounts, ss numbers, and all the info. on the tax Federal and State returns are now available for sale on the internet.

February 16 2013 at 1:42 PM Report abuse rate up rate down Reply

Brenda, I am no tax expert but it seems to me that with your circumstances (especially with a brother on ss disability) , you are certainly eligible to claim them both as dependents. Of course, not sure about your mom since she does receive social security but its worth asking a professional. If I were you I would read the guidelines from the IRS pamphlets AND then call your nearest IRS office to speak with a counselor. Good luck.

February 16 2013 at 10:50 AM Report abuse rate up rate down Reply

SO i take care of my brother and mother. They both live with me. My brother is on ss disability , and my mother is on social security. I dont take there money,and i take care of all their needs. Am i able to claim them?

February 16 2013 at 10:36 AM Report abuse +2 rate up rate down Reply

If your over 65 like me, you can no longer claim an exemption in Michigan. Thanks to Rick Snider, Gov. of Michigan. GOOD BUY RICK!!!!! Dont vote Republican...

February 16 2013 at 9:52 AM Report abuse -2 rate up rate down Reply
2 replies to denboneone's comment

Sorry but your gov. has no say so in a federal tax return. Get an education.

February 16 2013 at 9:24 PM Report abuse +1 rate up rate down Reply
1 reply to tags1960's comment
Krystal Jordan

I'm sure that a 65 year old person has a higher education than you in many ways. unlike you my mother raised me to respect our elders and definitely never insult them. Obviously our upbringings are different. Also there may be other circumstances that they are dealing with for why they can not file an exemption so two quick lessons in life to help you are to respect your elders and know the full story before you judge and insult. Just a little education for you.

February 17 2013 at 3:53 AM Report abuse +1 rate up rate down
Henry ptnm

Best thing for you to do, look up Michigan tax laws in the internet. At 65, you should get an exemption. I'm 65 and I get an exemption from my state (Ct.) As note, the governor has no say when it comes to Federal taxes. If you have a CPA, he or she will give the best answers.

February 17 2013 at 8:19 AM Report abuse rate up rate down Reply

So I am confused about "dependent children"...if he or she is 19 or older and NOT a full time student, even if you provide all of their support, you CANNOT claim them as a dependent. And yet, if its another close relative (e.g. parent, sibling), or simply even a friend (as long as you provide all their support), then you CAN claim then. Isn't that a little discriminatory or am I reading this wrong?

February 16 2013 at 9:40 AM Report abuse rate up rate down Reply
2 replies to Michele's comment

No Michelle you read it right and doesn't make much since that they put a age on your own kids and full time student but relatives or best friends has no limits makes no sense... Why is the IRS putting limit's like on our own kids and not have the same guidelines as relatives and best friends????....Makes no sense!!!!!!!!

February 16 2013 at 10:37 AM Report abuse +1 rate up rate down Reply
1 reply to Southren_Girl's comment

what about this government makes sense at all anymore???

February 16 2013 at 3:41 PM Report abuse +1 rate up rate down

If the child is no longer eligible as a dependent exemption because of their age /student status, they may still be claimed as a dependent exemption as a qualifying relative if they make less than the income limit ($3800 in 2012), lived in the household the entire year, AND the taxpayer provides more than half the child's total support. The term "qualifying relative" is misleading--the IRS applies it to anyone for whom the taxpayer provides over half the support, as long as the dependent make less than the income limit and lived with the taxpayer all year. A qualifying relative could be anybody meeting these conditions, including a BF/GF, their kids, or a friend.

February 17 2013 at 1:43 PM Report abuse rate up rate down Reply