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What Is a Personal Allowance?

A single parent may be allowed a larger personal allowance than an adult with no children.
Some income reported to the IRS is considered a personal allowance and is not taxable.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 December 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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Also known as a personal exemption, a personal allowance is the amount of income that is not considered taxable by a local, state, or federal tax agency. Essentially, the taxpayer can generate up to a certain amount of income each year and not owe any taxes on that amount. The amount of the personal allowance or exemption is noted on the tax forms issued by the agency for the use of taxpayers to prepare tax returns. Since the exact amount of the exemption may change from one tax year to the next, taxpayers should always consult the instructions accompanying the form to determine how much of an allowance they can legally claim for the tax period.

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The exact amount of a personal allowance will vary, based on current tax regulations and the circumstances of the individual or couple who are filing the federal income tax return. In many countries, an individual is allotted one level of exemption or allowance, while a different amount is identified as the allowance for a couple that are considered partners in a legally recognized union, such as a marriage or a civil union. It is not unusual for taxpayers in some countries to also be entitled to a certain level of personal allowance based on the number of dependents living in a household. For example, a single parent with three minor children residing full time in the home may receive a larger personal allowance than an individual with no children, depending on the specific tax laws that apply in the jurisdiction where those individuals reside.

One of the benefits of a personal allowance is that the income is considered exempt from taxation. This means that the total amount of the allowance is deducted from the actual income earned by the filer during that specific tax period. Should the individual earn less during that period than the amount of the allowance, he or she will owe no taxes and will likely receive a return of any taxes that were withheld by employers during that tax year. Unlike other types of exemptions and deductions that may or may not be available to different taxpayers, most tax agencies extend some type of personal allowance or exemption to every taxpayer, effectively helping to at least reduce the amount of taxable income to some extent.

It is not unusual for the amount of the personal allowance to change over time. This is because many national, state, and local tax agencies adjust the amount of the exemption to compensate for shifts in the economy. Before actually preparing a tax return for submission to the tax agency, it is always a good idea to read through the instructions that accompany the tax forms. The instructions will note any changes to personal allowance allotments for people with different filing statuses, making it easier to claim the right level of exemption and avoid the need to file an amended return.

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