Personal Exemption Phaseout
Personal Exemption Phaseout (PEP) reduces personal exemptions ($3,400 in 2007) for both taxpayers and their dependents by 2 percent for each $2,500 (or part of $2,500) that adjusted gross income (AGI) exceeds the threshold for the relevant filing status. In 2007, the income range over which exemptions phase out are:
| Filing Status | Phaseout Begins | Phaseout Ends |
| Single | $156,400 | $278,900 |
| Head of Household | $195,500 | $318,000 |
| Married Filing Joint or Qualifying Widow(er) | $234,600 | $357,100 |
| Married Filing Separately | $117,300 | $178,550 |
The 2001 tax act limits the reduction in 2007 to no more than two-thirds of a taxpayer’s full exemptions; thus, each exemption cannot be reduced below $1,133. That maximum reduction occurs when AGI exceeds the relevant threshold by more than $122,500.
Examples
Single filer with no dependents and AGI = $175,000 Income exceeds phaseout start by $18,600 (= $175,000 - $156,400); divide that excess by $2,500 = 7.44, which rounds up to 8. Reduction = 8 times 2 percent = 16 percent of $3,400 = $544. Reduction in personal exemption is 2/3 of $544, or $363.
Married couple with two children and AGI = $250,000 Income exceeds phaseout start by $15,400 (= $250,000 - $234,600); divide that excess by $2,500 = 6.16, which rounds up to 7. Reduction = 7 times 2 percent = 14 percent of $13,600 = $1,904. Reduction in personal exemption is 2/3 of $1,904, or $1,269.
Values for 2008
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