What is the purpose of the dependency exemption?

The purpose of the dependency exemption is to reduce taxable income based on the number of dependents a taxpayer has. This tax exemption allows individuals to lower their overall taxable income, thereby potentially resulting in a lower tax bill. Each qualifying dependent reduces the amount of income that is subject to taxation. For example, if a parent claims their child as a dependent, the parent's taxable income decreases, reflecting the additional financial responsibilities associated with raising that child.

This exemption was significant in past tax regulations, as it provided some relief to taxpayers supporting children or other dependents. Although the specific rules around dependency exemptions have evolved, the fundamental idea remains centered on acknowledging the financial burden taxpayers carry when supporting dependents, thereby modifying their taxable income accordingly.