Personal Exemptions Explained

As you fill out your federal income tax return, even before you report your income, the IRS asks you to list your personal exemptions. It's important not to skip this step -- exemptions reduce your taxable income.

For 2010, the personal income tax exemption amount is $3,650, the same as in 2009. That's per person, not per family. That amount applies so long as your adjusted gross income (AGI) falls under the phaseout amount; the amount of personal exemptions you can claim is normally phased out as your income rises. As a result of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, there is a temporary repeal of the PEP (personal exemption phase-out) limitations. With the repeal, high-income taxpayers hold on to their exemptions a little longer.