The IRS code for personal tax returns, in some areas of the 1040, is one step shy of being a lottery scratch-off ticket. There are deductions, credits and exemptions; some before tax is computed, some after. The current 1040 tax return is a Rube Goldberg-esque, 100 years in the making, attempt to ensure that you aren’t cheating your fellow Americans by paying less than you’re supposed to in tax.
In the case of exemptions, everyone gets one (for example, if you’re married, filing jointly, you automatically get 2). Additionally, if you have dependents (a status granted to those cute kids referred to earlier) you are entitled to an exemption for each of those, as well.
The personal and dependent exemption amount for 2015 tax returns is: $4,000.
Similar to itemized deductions, though, exemptions are phased out as your income reaches certain limits.
Married, filing jointly: $309,900
Head of Household: $284,050
Married, filing separately: $154,950
A family of 5, earning less than $309,900, would report a $20,000 exemption amount.
Feel free to reach out with any questions regarding exemptions (line 42 on the 1040) to email@example.com