A tax exemption is a gift from the IRS…it’s chunks of your income on which you won’t have to pay any federal income tax. There are a few reasons for this, but the most common is the personal tax exemption. That’s because every taxpayer gets it! It’s just a certain amount of money which we all get to earn that’s not taxed.
If you are married, you also get a personal tax exemption for your spouse if you are filing jointly. Also, if you claim any dependents then you get personal tax exemptions for each dependent as well.
If you make too much money, however, the personal tax exemption gets phased out, the more you make. For 2013 the personal exemption phaseout starts at an income of $250,000. It’s completely gone if you make $372,500. So, between a quarter of a million dollars and $372,500 you get a partial personal exemption. That’s the nature of a phaseout.
If you are non-resident alien you can claim the personal exemption but not the spouse and dependent exemptions. However, if you are a on-resident alien and you’re married to a U.S. citizen or a resident alien then you may claim these personal exemptions if you have chosen to be treated as a resident of the U.S.
The Personal Tax Exemption & Your W4 Form
The W4 Form is where you claim your personal exemption. The personal exemption amount changes each year to keep up with inflation. The W4 is also where you would claim other allowances, like dependents. This will cause your employer to withhold less money from your future paychecks. If, when figuring your federal income taxes at the end of the year it turns out that you claimed too many allowances then you will just end up paying back the money that you received in your paycheck that should have been withheld.
For more on tax withholding visit the IRS website here.