The 16th Amendment to the U.S. Constitution gives Congress the power to create and collect income tax. This led to the passing of the Internal Revenue Code (“IRC”). The IRC is enforced by the Internal Revenue Service (“IRS”), which is the federal government agency that is responsible for collecting taxes.
The IRC determines the standards for all tax laws, including federal, state, and local tax regulations. In the IRC’s terms, income tax is a specific type of tax that the government imposes on personal income. An example would be when you receive your paycheck, and you may notice that a certain percentage is deducted from the total amount. This deduction generally accounts for different levels of income taxes and state or federal programs such as Social Security benefits.
If your employer deducts income taxes from your paycheck, this will be reflected when you file your state and federal taxes for the year. You sometimes receive a tax refund or excess payment after you file your taxes because you paid more income tax than was necessary for the year.
However, not everyone is subject to income tax laws. The federal government does not collect income tax from those who are unemployed, and certain states might not subject their residents to state income taxes.
What Types Of Tax Exemptions Are Available For Taxpayers?
Taxpayers may take two significant types of personal exemptions on their tax returns for themselves and the people they know. When these exemptions are claimed, they can reduce or eliminate your obligation to pay taxes for that year.
Most taxpayers are entitled to an exemption on their tax return that reduces their tax bill in the same way a deduction does. They are personal exemptions for yourself and your spouse and dependency exemptions.
The personal exemption is a statutorily determined exemption that all taxpayers may take on their tax return from their gross income. So long as you are not claimed as a dependent on another taxpayer’s return, each person filing alone may claim one personal exemption. This is a fixed amount that generally increases each year. If you are married and file a joint tax return, you and your spouse get an exemption.
If you are married and file a separate return, you can claim an exemption for your spouse, but only if:
- Your spouse collected no income for the tax year;
- Your spouse is not filing a return; and
- Your spouse was not the dependent of another taxpayer.
The IRS has determined that because the taxpayer supports a non-earning spouse, they are entitled to deduct a standardized support cost from their gross income. The amount of deduction changes considerably, so it is advised that you check with your local taxing authority to determine the statutory amount.
What Is The Dependency Exemption?
You are allowed one exemption for each person you can claim as a dependent. The dependency exemption allows taxpayers to deduct a standardized amount from their tax return each year to support dependents. While you can claim a dependent even if that dependent files their own tax return, you cannot claim a dependent if that person could be claimed as a dependent by another taxpayer.
In theory, there are no limitations on how many dependency exemptions a single taxpayer may take, as long as the person meets the statutory test of a dependent. A dependent is a qualifying child or relative, which will be clarified below. Additionally, the specific dollar amount of the statutory entitlement changes almost yearly.
To be claimed as a dependent, five requirements must be satisfied:
- Relationship: The dependent must either be a relative or a member of your household for the entire year;
- Citizenship: The dependent must either be a
- US citizen;
- resident of the US, Canada, or Mexico for part of the year;
- A legally adopted foreign child who is now living in the US; or
- An adopted child who is living with you for the entire year in a foreign country.
- Joint Return: A dependent may not file a joint return with their spouse;
- Support: A dependent must be supported by greater than 50% by the taxpayer; and
- Income: A dependent cannot earn more income than the exemption amount, which also changes yearly. A considerable exception to the income test exists for college students earning income while also being claimed as a parent’s dependent.
What Happens If I Do Not Pay All Of My Taxes?
A person who does not pay all their taxes may be subject to various fees. If there is a legitimate reason why a taxpayer did not pay their taxes, they may be able to negotiate for an extension. They may also be able to participate in a payment plan to pay taxes still owed but in monthly installments.
However, if taxpayers do not have a valid reason why they did not pay all of their taxes or deliberately avoided paying them, they could be charged with a felony. This is because it is generally illegal to refuse to pay taxes. A person who engages in an intentional scheme to avoid paying taxes to the IRS is committing tax evasion. This felony offense can result in serious fines and a prison sentence of up to five years.
Additionally, a taxpayer who only pays a portion of the taxes they owe may be subject to an audit by the IRS. An audit reviews a person’s financial information and various monetary accounts. The IRS uses audits to confirm that a taxpayer is accurately reporting their taxes and complying with federal tax laws. A taxpayer may be subject to a tax audit if the IRS does not believe that they have paid their fair share of taxes or if they believe that they deducted items that should not have been deducted.
During an income tax audit, the taxpayer will meet with an IRS representative who may ask specific questions about their tax returns to ensure that the taxpayer provided a full income report. This also confirms that any deductions that were declared were lawful and appropriate. If the IRS representative determines that the taxpayer was honest, the case will be closed.
However, if the IRS discovers that the taxpayer was lying or did not report certain forms of income that should have been reported, they will likely be subject to supplemental taxes and monetary penalties. Taxpayers must keep records of their past tax returns and expense records to support their deduction claims.
If the IRS demands payment of less than $50,000 in taxes within a single year, the taxpayer may petition the U.S. Tax Court to review the matter. However, it should be noted that the judgment that the U.S. Tax Court issues will be considered as final.
Do I Need A Lawyer For Help With Personal Exemptions For Taxpayers?
You should consult with a local tax attorney in your area if you have any questions or issues associated with paying your taxes, specifically personal exemptions. An experienced tax attorney near you can help you understand your state’s specific laws, and will also be able to represent you in court, as needed, should any legal issues arise.
