Personal Exemption Phaseout

Personal Exemption Phaseout (PEP) reduces personal exemptions ($3,650 in 2010) 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. However, the 2001 tax act eliminated the phaseout for 2010; as a result, all taxpayers get the full value of their personal exemptions in that year.

The reductions will reappear in full in 2011 if the 2001 tax act sunsets as scheduled. TPC estimates that the personal exemption will be $3,700 in that year and that the phaseout would occur over the following income ranges:

Examples

Single filer with no dependents and AGI = $200,000 Income exceeds phaseout start by $30,450 (= $200,000 - $169,550); divide that excess by $2,500 = 12.18, which rounds up to 13 Reduction = 13 times 2 percent = 26 percent of $3,700 = $962.

Married couple with two children and AGI = $275,000 Income exceeds phaseout start by $63,050 (= $275,000 - $211,950); divide that excess by $2,500 = 22.55, which rounds up to 23. Reduction = 23 times 2 percent = 46 percent of $7,400 = $3,404.

Values for 2009 tax year

Values for 2008 tax year

Individual Income Tax Parameters (Including Brackets), 1945-2009