No, the personal exemption is not currently being phased out; instead, it is suspended.
From 2018 through 2025, the personal exemption amount has been set to zero as a result of changes in federal tax law. This means that for these years, taxpayers cannot claim a personal exemption, and thus, there is no amount to be phased out based on income.
Current Status: Suspension (2018-2025)
The personal exemption, which previously allowed taxpayers to reduce their taxable income, is suspended for several years. This suspension effectively sets the exemption amount to $0.
- Period: Tax years 2018 through 2025.
- Impact: During this period, taxpayers do not claim a personal exemption on their tax returns. Since the value is zero, the concept of "phasing out" due to higher income does not apply.
Historical Context: When Phase-Out Applied (1991-2017)
While the personal exemption is currently suspended, it was subject to a phase-out for much of its history before 2018.
- Period: For almost all years from 1991 to 2017, with the exception of 2010, 2011, and 2012.
- Mechanism: During these periods, the value of the personal exemption would gradually be reduced or "phased out" for taxpayers whose adjusted gross income (AGI) exceeded specific thresholds. As income rose above these thresholds, the exemption amount a taxpayer could claim would decrease until it was entirely eliminated for very high earners.
Future Outlook: Reinstatement (2026 Onward)
Looking ahead, current tax law indicates that the personal exemption is scheduled to be reinstated starting in 2026.
- Potential Reinstatement: If current tax laws are not modified, the personal exemption will return for the 2026 tax year and beyond.
- Future Phase-Out: It is important to note that if reinstated, the personal exemption could again be subject to phase-out rules, similar to how it operated historically, depending on the specific legislation in effect at that time.
Understanding Suspension vs. Phase-Out
It's crucial to distinguish between a "suspension" and a "phase-out" of the personal exemption:
| Feature | Suspension | Phase-Out |
|---|---|---|
| Definition | The personal exemption amount is temporarily set to $0, making it unavailable. | The personal exemption amount is gradually reduced for taxpayers whose income exceeds certain statutory thresholds, eventually reaching $0 for high-income earners. |
| Availability | Not available at all for the specified period (e.g., 2018-2025). | Available, but its value decreases based on income level; low-income taxpayers can claim the full amount. |
| Impact | Eliminates the tax benefit entirely for all taxpayers during the suspension period. | Reduces the tax benefit for higher-income taxpayers while preserving it for lower and middle-income taxpayers. |
| Current Status | Applies now (2018-2025). | Not currently applicable to the personal exemption, as the exemption itself is suspended. |
Practical Insights for Taxpayers
The suspension of the personal exemption from 2018 through 2025 has direct implications for how individuals calculate their taxable income. While this change removed one form of deduction, other tax provisions, such as increased standard deductions and changes to child tax credits, were also part of the same tax reform to offset some of the impact.
