Chapter 21
Personal Exemptions

Each personal exemption you claim on your 2017 return is the equivalent of a $4,050 deduction. Exemptions for children, parents, and other dependents are allowed if the tests in this chapter are met.

If you have a high adjusted gross income for 2017, you may lose part or even all of your deduction for exemptions under a phaseout rule (21.12).

21.1 How Many Exemptions May You Claim?

On your 2017 return, you may claim a $4,050 exemption (same as for 2016) for each of the following, provided you are not subject to the phaseout rule for high-income taxpayers (21.12):

• Yourself. You claim an exemption for yourself, unless you can be claimed as a dependent of another taxpayer. If someone else could claim you as a dependent for 2017, you may not claim a personal exemption for yourself on your own return; this is true even if the other person does not actually claim you as a dependent. Similarly, your child or other dependent may not claim an exemption on his or her own return if you could claim an exemption for that child or other dependent.
• Your spouse. You claim your spouse as an exemption when you file a joint return, unless your spouse can be claimed as a dependent by another taxpayer. If you file a separate return, you claim your spouse as an exemption if he or she has no income and is not a dependent of another person (21.2).

• Your dependents. A dependent must be either your qualifying child or your qualifying relative. In addition to meeting the tests for a qualifying child or relative, the child/relative must meet a citizen or resident test and if married, generally must file separately (see below for exceptions).

  Regardless of whether these tests are met, you are not entitled to claim any exemptions for dependents if you, or your spouse if filing jointly, can be claimed as a dependent by another taxpayer.

Qualifying children. In addition to your biological children, “qualifying children” for exemption purposes can include your stepchildren, foster children, siblings, half-siblings or step-siblings, and the descendants of any of these, such as your grandchildren, nieces or nephews, provided all of the following tests are met:

1. The child had the same principal place of abode (residence) as you did for more than half of 2017. Temporary absences are disregarded.
2. The child is under age 19 at the end of 2017, or under age 24 at the end of 2017 if a full-time student during any part of at least five months during the year. In addition, the child must be younger than you are, or younger than your spouse if you file jointly. However, there is no age limit if the child is permanently and totally disabled at any time during the year.
3. The child did not provide more than half of his or her own support (21.3) for 2017.

4. If married, the child does not file a joint return for 2017, unless the return is only a claim for a refund.

   See 21.3 for further details on the qualifying child rules, including the tie-breaker rules that determine who can claim the child when the child is a qualifying child of more than one person.

Qualifying relatives. An individual is your qualified relative for 2017 if the following three tests are met:

1. The individual is your relative or member of your household (21.4). However, a relative or member of your household cannot be claimed as your qualifying relative if he or she is your qualifying child or the qualifying child of any other taxpayer.
2. The individual had gross income for 2017 of under $4,050.
3. You contributed over half of the individual’s support for 2017, or you contributed more than 10% of his or her support under the multiple support test (21.6).

See 21.4 for further details on the qualifying relative rules.

Additional tests for claiming dependents. Even if a person is your qualifying child or relative, you cannot claim that person as your dependent if any of the following apply:

1. You, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer for the taxable year. You are not considered another person’s dependent if that person is not required to file a return and either does not file or files solely to claim a refund for witheld taxes or estimated tax payments.
2. The child/relative is not a U.S. citizen or national, or a resident of the U.S., Canada, or Mexico for at least some part of the year; there is an exception for certain adopted children (21.8).
3. If married, the child/relative files a joint return, unless the return is only a claim for refund and neither spouse would owe tax on a separate return (21.9).

Special rules for divorced or separated parents. See the rules for determining which parent may claim the exemption for their children (21.7).

Death of dependent during the year. If a dependent who otherwise met the tests for a qualifying child or relative died during the year, you can claim an exemption for that dependent.

Social Security numbers checked by IRS. The IRS verifies the Social Security numbers for both spouses on a joint return (21.10) and for all claimed dependents (21.11).

21.2 Your Spouse as an Exemption

Your spouse is not your dependent for tax purposes. An exemption for a spouse is based on the marital relationship, not support. On a joint return, each spouse receives an exemption as a taxpayer. The name and Social Security number of each spouse listed on a joint return will be matched by the IRS against computer records of the Social Security Administration. If there is a mismatch, the exemption for that spouse will be disallowed (21.10).

On a separate return (as married filing separately or as head of household), you may claim your spouse as an exemption if he or she has no gross income and cannot be claimed as a dependent by another taxpayer. You may not claim an exemption for your spouse who has income, unless you file a joint return that includes that income. For example, if a wife reports income on a separate return, her husband may not claim her as an exemption on his separate return, even if she filed her return merely for a refund of taxes withheld on her wages.

If your spouse is a nonresident alien, has no income from U.S. sources, and is not a dependent of another person, you may claim an exemption for your spouse on a separate return.

If divorced or legally separated during the year. You may not claim your former spouse as an exemption if you are divorced or legally separated under a final decree of divorce or separate maintenance, even if you provided his or her entire support. However, an interlocutory (not final) decree does not bar you from claiming your spouse as an exemption.

Your spouse died during the year. If you did not remarry and your deceased spouse had gross income, you may claim an exemption for your spouse only if you file a joint return that includes his or her income. You may claim the exemption on a separate return only if your spouse had no gross income and was not a dependent of another taxpayer.

If you remarry before the end of the year in which your spouse died, you may not claim an exemption for your deceased spouse. If you file a joint return with your new spouse, you may be claimed as an exemption on that return. If you had no income for the year, you may be claimed as an exemption on both your deceased spouse’s separate return and on a separate return filed by your new spouse, provided no one else may claim you as a dependent.

21.3 Qualifying Children

You may claim an exemption for your qualifying children provided you (and your spouse if you file jointly) cannot be claimed as a dependent by someone else and the citizenship or resident (21.8) and joint return (21.9) tests applicable to all dependents also are met.

Qualifying children include your children, siblings, and their descendants (see the relationship test below) if a residence test and age or student test are also met. If the relationship, residence, and age/student tests are met, you do not have to show that you provided more than half of the child’s support, as is required for a qualifying relative (21.4). However, a child is not a qualifying child if he or she provides over half of his or her own support. A married child who files a joint return also cannot be your qualifying child, unless the joint return is filed solely to obtain a refund. For a qualifying child, there is no gross income test; he or she may earn any amount and still be claimed as your dependent. Even if a child is not your qualifying child, as where the age/student test or place of abode test is not met, you may still be able to claim an exemption for the child as your “qualifying relative” (21.4), provided he or she has little or no income (no more than $4,050 for 2017).

Relationship test. Your children, stepchildren, and their descendants (your grandchildren and great-grandchildren), and your siblings, including step- and half-brothers and -sisters and their descendants (your nieces and nephews), meet the relationship test. A legally adopted child or a child lawfully placed with you for adoption is treated as your child, as is a foster child placed with you by a court order or by an authorized placement agency.

Residence test (abode test). The qualifying child must have the same principal place of abode as you for more than half the year. You do not have to own the home or pay the maintenance costs, but the child must live with you for over half the year.

Temporary absences disregarded. In applying the residence test, your child is considered to be living with you while either of you is temporarily absent (or you both are) due to special circumstances. This includes temporary absences while away at school or on business, while obtaining medical treatment or institutional care, taking vacations, serving in the military, or while incarcerated.

Kidnapped child. The principal place of abode test is considered met for a child under age 18 who met the test prior to being kidnapped by a non–family member.

Birth or death of child during the year. You may claim a full exemption ($4,050 for 2017) for a child born during the year if the child lived with you after birth for over half of the rest of the year, apart from required hospital stays; the principal place of abode test is considered met for the year. An exemption is allowed for a child born alive even if he or she lived only for a moment. No exemption is allowed for a stillborn child.

The principal place of abode test is considered met for a child who died during the year if the child lived with you while alive.

Age or student test. Your qualifying child must either be: (1) under age 19 at the end of the year, (2) a full-time student under age 24 at the end of the year, or (3) permanently and totally disabled, regardless of age.

In addition, to qualify under Test 1 or 2, a child who is not permanently and totally disabled must be younger than you. If you are married and file jointly, the child must be younger than you or your spouse. For example, you are age 21 and you file jointly with your 25-year-old spouse. Your 23-year-old brother, a non-disabled full-time student, lives with you and your spouse. On your joint return, you can claim your brother as a qualifying child because he is younger than your spouse although older than you.

Qualifying as a full-time student. A full-time student is one who attends school full time during at least five calendar months in the tax year. For example: attendance from February through some part of June—or from February through May and then at least one month from September through December—qualifies. The five months do not have to run consecutively. Attendance at a vocational, trade, or technical school for the five-month period qualifies, but not correspondence schools or on-the-job training courses. Your child who attends school at night is considered a full-time student only if he or she is enrolled for the number of hours or classes that is considered full-time attendance.

Child’s self-support test. You do not have to contribute over 50% of a qualifying child’s support to claim an exemption. This is required for a qualifying relative (21.4) but not for a qualifying child. However, if a child contributes over half of his or her own support, he or she cannot be claimed as your qualifying child, even if the other tests are met (the relationship, residence, and age/student tests). See 21.5 for a list of items (such as food, lodging and clothing) that count as support.

Tie-breaker rules. The law provides tie-breaker rules to determine who can treat a child as a qualifying child when the qualifying child tests are met by more than one taxpayer.

If only one of the eligible taxpayers is the parent of the child, the child is treated as the qualifying child of that parent. This situation could arise, for example, where a parent and infant child live with the child’s grandparent for more than half the year. Both the child’s parent and grandparent would meet the principal place of abode test and relationship test with respect to the child, but under the tie-breaker rule, the child is treated as the qualifying child of the parent. However, the parent can choose not to claim the child, and allow the grandparent to claim the exemption, provided the grandparent’s adjusted gross income (AGI) exceeds his or her own AGI. If the parent’s AGI equals or is higher than the grandparent’s AGI, the grandparent cannot claim the exemption; only the parent can. If the parent or grandparent files a joint return, the total AGI on the joint return is taken into account in determining which of them has the higher AGI.

If the parents file separate returns and both meet the tests for treating the child as a qualifying child, they may be unable to agree on which of them should claim the child. If they each claim the child on a separate return, the IRS will first determine if the noncustodial parent is entitled to the exemption under the special rule for divorced or separated parents (21.7). If the special rule applies, the tie-breaker rules do not apply. If the special rule does not apply and the child is a qualifying child of both parents under the above tests, the tie-breaker rule deems the child to be the qualifying child of the parent with whom the child has resided for the longer period during the year. If the residency period with both parents is the same, the parent with the higher adjusted gross income is entitled to treat the child as a qualifying child.

If no parent meets the tests for claiming the child and more than one non-parent meets the tests, the non-parent with the highest adjusted gross income is entitled to claim the child as a qualifying child.

21.4 Qualifying Relatives

You may claim an exemption for a person as your qualifying relative if:

1. 1. the relationship, gross income, and support tests described below are met, and
2. 2. the individual is not your qualifying child (21.3) nor the qualifying child of any other taxpayer, and
3. 3. the individual meets the citizenship/resident test (21.8) and joint return test (21.9) required of all dependents, and
4. 4. you cannot be claimed as a dependent (nor your spouse if you file jointly) by another taxpayer,

If the member-of-household test described below is met, it may be possible to claim an individual as your qualifying relative even if he or she is “technically” the qualifying child of another taxpayer.

Relationship test. Relatives listed below meet the relationship test; they do not have to live with you. Unrelated or distantly related persons not on this list meet the relationship test if they live with you as discussed below under the member-of-household test.

Children, grandchildren, and great-grandchildren who are not qualifying children. Your children, grandchildren, and great-grandchildren can meet the relationship test for a qualifying relative only if they are not your qualifying children or the qualifying children of any other taxpayer under the rules for qualifying children (21.3). For example, if your child is not your qualifying child for 2017 because he or she does not meet the age/student test or the principal place of abode test (21.3), you may still be able to claim an exemption for the child as your qualifying relative, but only if he or she has gross income for 2017 under the $4,050 limit and you provide over 50% of his or her support for the year.

Brothers, sisters, and their children. The same considerations discussed above for children, grandchildren, and great-grandchildren apply for your siblings (including half- or step-siblings) and their children (your nieces and nephews). They can be your qualifying relatives only if they are not your qualifying children (21.3) or the qualifying children of anyone else.

Parents, grandparents, and other relatives. The following individuals also meet the relationship test: your parent, grandparent, great-grandparent, step-parent, son- or daughter-in-law, father- or mother-in-law, and brother- or sister-in-law. If related by blood, aunts and uncles also qualify.

Stepchild’s husband or wife or child. Your stepchild’s spouse does not meet the relationship test. Nor may you claim an exemption for a step-grandchild if you file a separate return. But you may claim them on a joint return as qualifying relatives if the other exemption tests are met. On a joint return, it is not necessary that the close relationship exist between the dependent and the spouse who furnishes the chief support. It is sufficient that the relationship exists with either spouse.

In-laws. Brother-in-law, sister-in-law, father-in-law, mother-in-law, son-in-law, and daughter-in-law are relatives by marriage. They meet the relationship test and you may claim them as exemptions if the other tests for qualifying relatives are satisfied.

An in-law who was related to you by marriage and whom you continue to support after divorce or the death of your spouse meets the relationship test.

Death during the year. If a person who meets the relationship test died during 2017 but was supported by you while alive, and the other tests for an exemption are met, you may claim an exemption for the relative.

Member-of-household test for unrelated or distantly related dependents living with you. A relative not listed above, such as a cousin, meets the relationship test if he or she lives with you all year as a member of your household, except for temporary absences due to schooling, vacationing, being away on business, serving in the military, or being confined to a hospital. A friend or live-in mate can also qualify, except in those few states where cohabitation is illegal.

The “all-year” test can cost you an exemption, despite the level of your support. For example, in one case, a taxpayer let his cousin and her children move in with him in May because the cousin feared her estranged husband. The Tax Court held that he could not claim the children as dependents under the member-of-household test because they did not live with him for the whole year, but only from May through December.

Under the tax law, one spouse is not considered a dependent of the other (21.2). If you are divorced or legally separated during the year, your former spouse cannot be your qualifying relative even if he or she is a member of your household for the whole year.

Special exception for child of unmarried cohabitant. If a taxpayer lives with and supports a mate and the mate’s child, an exemption for the child may or may not be allowed to the taxpayer under the member-of-household test. For example, if a taxpayer supports his girlfriend and her child as members of his household, he “technically” cannot claim the child as his qualifying relative because the child is the mother’s qualifying child (21.3) and a qualifying child cannot be the qualifying relative of someone else. However, the IRS allows a limited exception. The exemption for the child can be claimed if the child’s mother (for whom the child is a qualifying child) is not required to file a tax return because of low income, and she does not file a return or files solely to get a refund of withheld income taxes. If the mother files a return to claim the earned income credit as well as to obtain a refund for withheld income taxes, the exception does not apply and the taxpayer cannot treat the child as his qualifying relative.

The mother can also be the qualifying relative of the taxpayer under the member-of-household test, provided that their relationship is not illegal under local law.

Gross income limit. A person meeting the above relationship test cannot be claimed as your qualifying relative for 2017 if he or she had gross income of $4,050 or more; gross income must be under $4,050, the exemption amount for 2017. This gross income test applies even if you provide most or all of that person’s support. Since the gross income of a qualifying relative must be under the annual exemption amount, the income limit will change as the exemption amount is adjusted for inflation.

Keep in mind that the gross income test does not apply to children who meet the tests for a qualifying child (21.3). However, if a child does not meet the age/student test or principal place of abode test, and thus is not a qualifying child (21.3), he or she must have gross income under the annual limit ($4,050 for 2017) to be claimed as a dependent under the qualifying relative rules.

Gross income here means taxable income items includible in the dependent’s tax return. It does not include nontaxable items such as gifts and tax-exempt bond interest. Gross income for a service-type business is gross receipts without deductions of expenses and for a manufacturing or merchandising business is total sales less cost of goods sold. A partner’s share of partnership gross income, not the share of net income, is treated as gross income.

Social Security benefits are treated as gross income only to the extent they are taxable (34.3).

Exception for disabled student working at sheltered workshop. For purposes of the gross income test gross income does not include income earned by a totally and permanently disabled individual at a school operated by a government agency or tax-exempt organization, if the school provides special instruction for alleviating the disability and the income is incidental to medical care received.

Support test. A person cannot be your qualifying relative unless you provide over half of his or her total support for the year. The support test applies to a child who does not meet the tests for a qualifying child (21.3). See 21.5 for how to count total support and your contribution to the total.

21.5 Meeting the Support Test for a Qualifying Relative

To claim an exemption for a dependent as a qualifying relative (21.4), you must contribute more than 50% of the dependent’s total support for the year. You do not have to meet this support test to claim a child as your dependent under the qualifying child rules (21.3), but qualifying child status is denied if a child provides over half of his or her own support, and the support items listed below count when making that determination.

Meeting the support test. Follow these steps to figure support: (1) Total the value of the support contributed by you, by the dependent, and by others for the dependent. Use the checklists later in this section for determining what to include in total support and what to exclude. (2) Determine your share of the total. If your share is more than 50% of the dependent’s total support, you meet the support test. It doe­s not matter how many months or days you provided the support; only the total cost of the support is considered. You may not take the exemption if the dependent contributed 50% or more of his or her own support or 50% or more was contributed by others, including government sources.

Multiple support agreement. If the dependent or someone else did not contribute 50% or more of the support, and you contributed more than 10% of the total support, you may be able to claim the exemption under a multiple support agreement (21.6).

Divorced or separated parents contributing to support of their children should follow a special rule (21.7).

Checklist of Support Items

• Food and lodging; see below.
• Clothing
• Medical and dental expenses, including premiums paid for health insurance policies and Medicare coverage (premiums paid for Medicare Parts A (if any), B, C, or D).
• Education expenses such as tuition, books, and supplies. If your child receives a student loan and is the primary obligor, the loan proceeds are considered his or her own support contribution. This is true even if you are a guarantor of the loan. Scholarships received by full-time students are not treated as support; see the checklist of nonsupport items in this section.
• Cars and transportation expenses. Include the cost of a car bought for a dependent as support. If you buy a car but register it in your own name, the cost of the car is not support provided by you, but any out-of-pocket expenses you have for operating the car are part of your support contribution.
• Recreation and entertainment. A computer or TV set bought for your child or other dependent is support. Also include costs of summer camp, singing and dancing lessons, and musical instruments, as well as wedding expenses.

Dependent’s income and personal savings may be support.

In figuring a person’s total support, include his or her taxable and tax-exempt income and personal savings if actually used for support items such as food, lodging, or clothing. Also include support items that are financed by loans. Income that is invested and not actually spent for support is not included in the earner’s total support.

Social Security. Social Security benefits (whether taxable or tax-exempt) received by your dependent are included in his or her total support only if they are actually spent on support items and not invested.

Social Security benefits paid to children of deceased workers that are used for their support are treated as the children’s contribution to their own support. Follow this rule even though benefits are paid to you as the child’s parent or custodian. If the Social Security benefits used for a child’s support are more than half of the child’s total support, no one may claim the child as a dependent.

Where spouses are paid Social Security benefits in one check made out in their joint names, 50% is considered to be used by each spouse unless shown otherwise.

Government benefits. In figuring whether you have provided more than 50% of the dependent’s support, you have to consider certain government benefits as support provided by a third party to the dependent. For example, Supplemental Security Income (SSI), welfare, food stamps, or housing payments based on need are support payments from the government if they are used for support of the dependent. G.I. Bill education assistance is support provided by the government.

Foster care payments by a child placement agency to parents are support provided by the agency and not by the parents. The value of board, lodging, and education provided to a child in a state juvenile home is treated as support provided by the state.

When a person joins the Armed Forces, the value of board, lodging, and clothing he or she receives is treated as the government’s support contribution. However, if you are in the Armed Forces, dependency allotments withheld from your pay and used to support your dependents are included in your support contributions for them. Also included in your support contribution is a military quarters allowance covering a dependent.

Lodging and food as support. The dependent’s total support includes the fair rental value of a room, apartment, or house in which the dependent lives. In your estimate of fair retail value, include a reasonable allowance for the rental value of furnishings and appliances, and for heat and other utilities. You do not add payments of rent, taxes, interest, depreciation, paint, insurance, and utilities. These are presumed to be accounted for in the fair rental estimate. The fair rental value of lodging you furnish a dependent is the amount you could reasonably expect to receive from a stranger for the lodging.

Does dependent live in his or her own home? If a dependent lives in his or her own home, treat the total fair rental value as his or her own contribution to support. However, if you help maintain the home by giving cash, or you directly pay such expenses as the mortgage, real estate taxes, fire insurance premiums, and repairs, you reduce the total fair rental value of the home by the amount you contributed when figuring his or her own support contributions; see the Example below.

If you lived with your dependent rent-free in his or her home, the fair rental value of lodging furnished to you must be offset against the amounts you spent for your dependent in determining the net amount of your contribution to the dependent’s support.

Food and other similar household expenses. If the dependent lives with you, you divide your total food expenses equally among all the members of your household, unless you have records showing the exact amount spent on the dependent; see the Examples at the end of this section. If he or she does not live with you, you count the actual amount of food expenses spent by or for that dependent.

Do you pay for a relative’s care in a health facility? If you pay part of a relative’s expenses for care in a nursing home or other facility, your payment is a support contribution. If you make a lump-sum contribution covering a relative’s stay in an old-age home or other care facility, you prorate your payment over the relative’s life expectancy to determine the current support contribution.

Checklist of Items Not Counted as Support of Dependent

• Federal, state, and local income taxes and Social Security taxes paid by the dependent from his or her own income
• Funeral expenses
• Life insurance premiums
• Medicare benefits or proceeds under Medicare Parts A, B, C, or D. Note that the rule is different for Medicare premiums: Medicare premiums are treated as support, but Medicare benefits are disregarded in determining a person’s support. In one case the IRS argued that Medicaid benefits were includible in total support but the Tax Court disagreed, holding that Medicaid is similar to excludable Medicare benefits.
• Medical insurance benefits received by the dependent
• Scholarships received by your child, stepchild, or legally adopted child who is a full-time student for at least five calendar months during the year. Scholarship aid is counted as support contributed by the child if he or she is not a full-time student for at least five months. Naval R.O.T.C. payments and payments made under the War Orphans Educational Assistance Act are scholarships that are not counted as support. State aid to a disabled child for education or training, including room and board, is a scholarship.

Allocating Support

The Examples below illustrate how you should allocate various support items when your contributions benefit more than one person or when your dependent provides part of his or her own support.

Earmarking support to one dependent. If you are contributing funds to a household consisting of several persons and the amount you contribute does not exceed 50% of the total household support, you may be able to claim an exemption for at least one dependent by earmarking your support to his or her use. Your earmarked contributions must exceed 50% of this dependent’s support costs. Mark your checks for the benefit of the dependent, or provide the dependents with a written statement of your support arrangement at the time you start your payments. If you do not designate for whom you are providing support, your contribution is allocated equally among all members of a household.

21.6 Multiple Support Agreements

Are you and others sharing the support of one person, but with no one individual providing more than 50% (21.5) of his or her total support? You are treated as meeting the support test for a qualifying relative (21.4) if:

1. You gave more than 10% of the support;
2. The amount contributed by you and others to the dependent’s support equals more than half the support;
3. Each contributor could have claimed the exemption—except that he or she gave less than half the support; and
4. Each contributor who gave more than 10% agrees to let you take the exemption. Each signs a Form 2120, “Multiple Support Declaration.” You then attach the forms to your return.

21.7 Special Rule for Divorced or Separated Parents

A special rule for divorced or separated parents allows the parent with whom the child lives for the greater part of the year (the custodial parent) to waive the exemption in favor of the other parent (the noncustodial parent), provided the following threshold conditions are met.

Threshold conditions for special rule. The special rule applies only if the following threshold conditions are met: (1) the child receives over one-half of his or her total support for the year from one or both parents, (2) the parents are divorced or legally separated under a decree of divorce or separate maintenance, separated under a written separation agreement, or live apart at all times during the last six months of the year (this includes parents who were never married to each other), and (3) the child is in the custody of one or both parents for more than half the year.

The first condition is not met, and the special rule does not apply, if a parent and other individuals contributing more than 10% of the child’s support enter into a multiple support agreement (21.6) authorizing the parent to claim the exemption.

Custodial parent and noncustodial parent. For purposes of the special rule, the custodial parent is the parent with whom the child resides for the greater number of nights during the year. The other parent is the noncustodial parent. A child who is temporarily absent is treated as residing with the parent with whom the child would otherwise have resided on that night. If during the year the child resides with both parents for an equal number of nights, the parent with the higher adjusted gross income is treated as the custodial parent.

Custodial parent’s waiver of exemption on Form 8332 or similar statement. The noncustodial parent is entitled to the exemption for the child if the above threshold conditions are met and the custodial parent provides a written waiver on Form 8332 (or similar statement) releasing the exemption for the taxable year to the noncustodial parent, and the noncustodial parent attaches the waiver to his or her return. Under proposed regulations, the noncustodial parent can attach the waiver to an original or amended return, but a waiver attached to an amended return will not qualify if (1) the custodial parent filed a return claiming the child as an exemption before signing the waiver, and (2) the custodial parent has not filed an amended return to remove his or her claim to the exemption.

A waiver on Form 8332 (or similar written release) by the custodial parent must specify the year or years for which it is effective. Part I of Form 8332 is completed to waive the exemption for the current tax year, and Part II is used to waive the exemption for specific future years or all future years. If Part II provides a release for “all future years,” IRS regulations treat this as referring to the first taxable year after the year of execution and all taxable years after that. The waiver cannotbe conditioned on the payment of support, or the meeting of some other obligation, by the noncustodial parent.

If a post-1984 decree or agreement executed before 2009states that the noncustodial parent has the unconditional right to claim the exemption for the child, and that the custodial parent is waiving the exemption for a specified year or years, the noncustodial parent can attach to his or her return the relevant pages from the decree or agreement instead of attaching Form 8332. The attachment must include the page that gives the noncustodial parent the unconditional right to the exemption, the page showing the custodial parent’s waiver, the cover page, on which the custodial parent’s Social Security number should be written, and the signature page showing the custodial parent’s signature and date of the agreement.

The option to attach pages from a decree or agreement is notavailable if the decree/agreement was executed after 2008. The noncustodial parent may claim the exemption only by obtaining the custodial parent’s waiver on Form 8332 (or similar written release) and attaching that to his or her return.

Note:A noncustodial parent who is given the right to claim the exemption under a pre-1985 agreement for a disabled child who has reached the age of majority may continue to claim the exemption by providing at least $600 of the child’s support for the year; seePublication 501 for details.

Custodial parent may revoke waiver. A custodial parent who has waived the exemption in favor of the noncustodial parent can revoke the waiver. The revocation can be made in Part III of Form 8332.

However, a revocation has a delayed effect. It does not apply until the year after the year in which you give a copy of it to the noncustodial parent or make a reasonable attempt to do so. For example, you are the custodial parent of your daughter and on Form 8332 you waived your right to the exemption for the years 2011 through 2019. In 2016 you revoked your waiver on Form 8332 and gave a copy of it to the noncustodial parent. You can claim the exemption for your daughter on your 2017 return, and then on your 2018 and 2019 returns. However, if you did not give the copy of the revocation to the noncustodial parent until 2017, the revocation is not effective until 2018. You must attach a copy of the revocation to your return for each year that you claim the exemption.

21.8 The Dependent Must Meet a Citizen or Resident Test

To claim a 2017 exemption for a dependent, the dependent must have at some time during 2017 qualified as a:

• United States citizen or resident alien;
• United States national (one who owes permanent allegiance to the U.S.; principally, a person born in American Samoa or the Northern Mariana Islands who has not become a naturalized American citizen); or
• Resident of Canada or Mexico.

Child born abroad. A child born in a foreign country, one of whose parents is a nonresident alien and whose other parent is a U.S. citizen, qualifies as a U.S. citizen and thus as a dependent if the other tests are met.

If you are a U.S. citizen or national who has legally adopted a child who is not a U.S. citizen, resident alien, or national, or the child was lawfully placed with you for adoption, and the child lived with you as a member of your household for the entire year, the child is treated as a U.S. citizen or resident and thus can be claimed as your dependent if the other exemption tests are satisfied.

21.9 The Dependent Does Not File a Joint Return

You may not claim an exemption for a dependent who files a joint return. For example, if you meet the other tests entitling you to an exemption for your married daughter as your dependent (21.1), but she files a joint return with her husband, you may not claim her as your dependent on your tax return.

Exception. Even if your dependent files a joint return, you may claim the exemption where the income of each spouse is under the income limit required for filing a return and the couple files a joint return merely to obtain a refund of withheld taxes or estimated tax payments. Under these circumstances, the dependent’s return is considered a refund claim, and you may claim the dependency exemption.

21.10 Spouses’ Names and Social Security Numbers on Joint Return

The IRS checks the Social Security number (SSN) of each spouse on a joint return. If the SSN and name on the return do not match IRS/Social Security Administration records, the IRS will disallow the exemption for that spouse.

The most common reason for a mismatch is when, after marriage, one spouse takes the other spouse’s last name, or a hyphenated name is used. An updated Social Security card should be obtained using Form SS-5, available from the Social Security Administration website at www.socialsecurity.gov, or calling (800) 772-1213.

If a new name is used on the return but Social Security Administration records have not been updated, the IRS will disallow that spouse’s exemption unless the new name is shown on an enclosed Form W-2 or the name change is explained and documented, such as by enclosing a copy of a new driver’s license or marriage certificate.

If a spouse’s exemption is disallowed, the IRS will mail the taxpayers an explanatory notice. By contacting the IRS and verifying a name change, the exemption can be restored.

21.11 Reporting Social Security Numbers of Dependents

On your return, you must list the Social Security number (SSN) of each dependent you claim. Include the SSNs of parents or other adults you claim as dependents, as well as those of children.

An SSN may be obtained from the Social Security Administration for U.S. citizens and aliens who have been lawfully admitted for permanent residence or employment. If a dependent is a resident alien or nonresident alien ineligible to obtain an SSN, an individual taxpayer identification number (ITIN) must be obtained from the IRS by filing Form W-7.

If you are in the process of legally adopting a U.S. citizen or resident child who has been placed in your home by an authorized placement agency, and you cannot obtain a Social Security number for the child in time to file your tax return, you may use Form W-7A to apply to the IRS for a temporary adoption taxpayer identification number (ATIN).

If you fail to include a correct SSN or ITIN for a dependent claimed on your return, the IRS may disallow the exemption, although it may contact you and give you an opportunity to provide the number. If an exemption is disallowed, the IRS may assess the extra tax using a summary assessment procedure if you fail to request abatement of the assessment within 60 days of receiving notice; this procedure does not require issuance of a deficiency notice, so there is no appeal to the Tax Court.

To obtain a Social Security number for a dependent child, file Form SS-5 with your local Social Security Administration office. Parents of newborn children may request a number when filling out hospital birth-registration records.

Religious beliefs. Religious beliefs against applying for and using SSN numbers for their children do not excuse taxpayers from the obligation to provide them. That’s what the Tax Court told the Millers, who had refused to use SSN numbers for claiming their two children as exemptions. They argued that SSNs are universal numerical identifiers equal to the “mark of the Beast,” as described in the New Testament. However, they were willing to use Individual Taxpayer Identification Numbers (ITINs).

The Court held that the IRS properly refused to issue ITINs in this case because ITINs are issued only to taxpayers who are ineligible to receive SSNs, which are issued by the Social Security Administration. The couple had argued that the requirement to use SSNs “substantially burdened” their First Amendment right to free exercise of religion, which entitled them to relief under the Religious Freedom Restoration Act of 1993. The Court held that it did not have to decide the “burden-on-religion” issue because the IRS was able to show that the SSN requirement furthers a compelling governmental interest and is the least restrictive means of achieving this interest. Here, the Government has a compelling interest in effectively tracking claimed dependency exemptions and administering the tax system in a uniform and mandatory way. Moreover, the requirement to supply SSNs for dependent children has significantly reduced the improper claiming of dependents. Allowing the use of ITINs would be a less effective means of detecting fraud than requiring SSNs. If an individual entitled to an SSN was issued an ITIN, an SSN could later be obtained, allowing duplicate exemption claims to be made.

21.12 Phaseout of Personal Exemptions

The deduction for each 2017 personal exemption is generally $4,050, but your deduction for exemptions is phased out if your adjusted gross income (AGI) exceeds the threshold for your filing status, as shown below. Note that these thresholds are the same as the thresholds for the reduction of overall itemized deductions (13.7). However, unlike the reduction of itemized deductions, which can never exceed 80%, the deduction for exemptions can be completely phased out if AGI is high enough.

Phaseout computation. As shown above, exemptions are phased out over an AGI range of $122,500, or $61,250 for married persons filing separately. If your 2017 AGI is within the $122,500 phaseout range, your deduction will be reduced by 2% for every $2,500 of AGI (or fraction of $2,500) in excess of the threshold amount ($313,800, $287,650, or $261,500). If married filing separately, the 2% reduction applies to every $1,250 (or fraction thereof) of AGI exceeding the $156,900 threshold.

Use Worksheet 21-1 to figure your allowable 2017 deduction for exemptions under the phaseout rule. A sample computation is shown in the following example.