The personal exemption phaseout means as your income grows, you will get less of standard exemption for tax year i.e $ 4050 ( Year 2017) . But ,the government desires that as the income of a tax payer increase , he/she should not claim personal tax exemption to the same extent which a taxpayer of low income is entitled to . SO , a formula has been devised by which as the Adjusted Gross Income goes up, the claimable personal exemption starts diminishing or phasing out.
The maximum personal and dependent exemption amount for Tax Year 2017 is $4,050 . However, the total personal exemptions to which you’re entitled will be phased out (i.e., reduced and eventually eliminated) as your adjusted gross income (i.e., the last line of the first page of your Form 1040) moves through a certain range.
|When Exemption Phaseout Begins & When Ends for Tax Year 2017|
|If Your Filing Status is:||Phaseout Begins When AGI reaches:||Completely Phased Out When AGI Reaches:|
|Head of Household||$287,650||$410,150|
|Married Filing Jointly||$313,800||$436,300|
|Married Filing Separately||$156,900||$218,150|
How the exemption phaseout computed calculation?
Step 1 : Determine your filing status. ( Say Single )
Step 2: Find out how many personal exemptions are claimed by you.
Step 3: Determine your Adjusted Gross Income (AGI) ( Say $ 300000)
Step 4: Find out AGI minus Filing Status Phaseout Begin Amount ( $300000 – $ 258 250 = 41750)
Step 5: Divide Step 4 by 2500 = Round up ( 41750 / 2500= 16.7 ( round up to 17)
Step 6 : Step 5 * 2% ( 17 * 2% = 34 % )
Step 7= Reduction in personal exemption should be $ 4000 * 34 % = 1360
So, a unmarried person filing return in single status having Adjusted Gross Income can claim only $ 2640 and not $ 4000 which is allowed to others .
If files married jointly, the exemption phaseout will be 1360 x2 = 2720 i,e personal exemption can be claimed only upto $ 5440 and not $ 8000.