The Personal and Dependent Exemptions date all the way back to 1913 when the Income Tax first began. The intention was to give each taxpayer, spouse and their dependents a yearly deduction for a minimal subsistence – enough money for food, clothing, shelter, etc. Minimum subsistence at that time, is what is sometimes called the Poverty Level today. Click this link Exemption & Dividends from 1913 thru 2006 to see a table of the Personal and Dependent Exemption amounts from 1913 through 2006. This Personal and Dependent Exemption money would then not be subject to the Income Tax.
For the 2016 tax year, each Personal Exemption is worth $4,050. If you listed Dependents in line 6c on page one of the form 1040A, you also get a Dependent Exemption of $4,050 for each Dependent Child and/or Dependent Relative. Each spouse of a Married Filing Jointly couple is entitled to their own $4,050 Personal Exemption. The total Personal and Dependent Exemption amount is listed on line 26 of the form 1040A.
Later in 1944, the Standard Deduction was added, to further set aside money for personal expenditure deductions, that would not be subject to the Income Tax. This combination survives to this day. Each year taxpayers can take advantage of the Personal Exemption and Standard Deduction, to subtract from their income, as not subject to Taxes.
The IRS refers to this as the Filing Threshold – the combination of the Standard Deduction and Personal Exemption amounts for your Filing Status. If your total yearly income was not above this combined value – you are not required to file a Federal Income Tax return. All the States have their own Filing Threshold levels – that are often different from the Federal levels. For the 2016 tax year, the Federal Filing Thresholds were as shown below for each of the (5) Filing Status categories:
- $10,350 if under age 65
- $11,900 if over age 65
- Married Filing Jointly
- $20,700 if both under age 65
- $21,950 if one spouse over age 65
- $23,200 if both spouses over age 65
- Married Filing Separately
- $4,050 if any age
- Head of Household
- $13,350 if under age 65
- $14,900 if over age 65
- Qualifying Widow(er) with dependent child
- $16,650 if under age 65
- $17,900 if over age 65
Even if a taxpayer is not required to file a Federal Income Tax return – because their total income for the year is below their Filing Threshold – many taxpayers will still file a tax return, to get back a refund of the Federal and State taxes withheld from their paychecks.
Click the link below for the next Blog post that explains how to calculate the Initial Tax Liability you have on the form 1040A.
The 1040A: The Initial Tax Liability
Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com
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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any tax transaction or filing any tax form.