Section 151 of the Internal Revenue Code was enacted in August 1954, and provided for deductions equal to the "personal exemption" amount in computing taxable income.
The exemption was intended to insulate from taxation the minimal amount of income someone would need receive to live at a subsistence level (i.e., enough income for food, clothes, shelter, etc.).
[citation needed] In addition to personal exemptions, taxpayers may claim other deductions that further reduce the level of income subject to taxation.
Generally speaking, for tax years prior to 2018, a personal exemption can be claimed by the taxpayer and qualifying dependents.
For taxpayers filing a joint return with a spouse, the Treasury Regulations allow two personal exemptions as well.
Married individuals who file joint returns cannot also be claimed as dependents of another taxpayer.
A child cannot qualify as a dependent on more than one tax return, so the code has a set of rules to prevent this from happening.
If more than one parent attempts to claim the child and they do not file a joint return, the code first attempts to break the tie in favor of the parent with whom the child resided longest during the taxable year.
If that does not break the tie, the parent with the highest adjusted gross income wins the right to claim the child as a dependent.
Included are children (in the broad sense of § 152(f)(1)), descendants of children, siblings, half-siblings, step-siblings, father, mother, ancestors of parents, stepparents, nieces, nephews, various in-laws, or any other non-spousal individual sharing the taxpayer's abode and household.
The income tax law in its modern form—which began in the year 1913—included a provision for a personal exemption amount of $3,000 ($71,764 in 2016 dollars), or $4,000 for married couples.
($95,686 in 2016 dollars) Over time the amount of the exemption has increased and decreased depending on political policy and the need for tax revenue.