Publication 501
Exemptions, Standard Deduction, and Filing Information

For use in preparing 2002 Returns

Important Changes

Who must file.   Generally, the amount of income you can receive before you must file a return has increased. Table 1 shows the filing requirements for most taxpayers.

Exemption amount.   The amount you can deduct for each exemption has increased from $2,900 in 2001 to $3,000 in 2002.

Exemption phaseout.   You lose all or part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which this phaseout begins depends on your filing status. For 2002, the phaseout begins at $103,000 for married persons filing separately; $137,300 for single individuals; $171,650 for heads of household; and at $206,000 for married persons filing jointly. See Phaseout of Exemptions, later.

Standard deduction.   The standard deduction for most taxpayers who do not itemize deductions on Schedule A of Form 1040 is higher in 2002 than it was in 2001. The amount depends on your filing status. The 2002 Standard Deduction Tables are shown near the end of this publication as Tables 7, 8, and 9.

Itemized deductions.   Some of your itemized deductions may be limited if your adjusted gross income is more than $137,300 ($68,650 if you are married filing separately). See Who Should Itemize, later.

Important Reminders

Kidnapped child.   A child who has been kidnapped may still qualify you for:

• Head of household or qualifying widow(er) with dependent child filing status, and
• The child's dependency exemption.

For details, see Filing Status and Exemptions for Dependents, later.

Social security number for dependents.   You must list either the social security number (SSN), individual taxpayer identification number (ITIN), or adoption taxpayer identification number (ATIN) of every person for whom you claim an exemption.

If you do not list the dependent's SSN, ITIN, or ATIN, the exemption may be disallowed. See Social Security Numbers for Dependents, later.

Election to report child's unearned income on parent's return.   You may be able to include your child's interest and dividend income on your tax return by using Form 8814, Parents' Election To Report Child's Interest and Dividends. If you choose to do this, your child will not have to file a return.

Photographs of missing children.   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Introduction

This publication discusses some tax rules that affect every person who may have to file a federal income tax return. It answers some basic questions: who must file; who should file; what filing status to use; how many exemptions to claim; and the amount of the standard deduction.

The first section of this publication explains who must file an income tax return. If you have little or no gross income, reading this section will help you decide if you have to file a return.

Table 1. 2002 Filing Requirements Chart for Most Taxpayers

The second section is about who should file a return. Reading this section will help you decide if you should file a return, even if you are not required to do so.

The third section helps you determine which filing status to use. Filing status is important in determining whether you must file a return, your standard deduction, and your tax rate. It also helps determine what credits you may be entitled to.

The fourth section discusses exemptions, which reduce your taxable income. The discussions include the social security number requirement for dependents, the rules for multiple support agreements, and the rules for divorced or separated parents.

The fifth section gives the rules and dollar amounts for the standard deduction - a benefit for taxpayers who do not itemize their deductions. This section also discusses the standard deduction for taxpayers who are blind or age 65 or older, and special rules for dependents. In addition, this section should help you decide whether you would be better off taking the standard deduction or itemizing your deductions.

The last section explains how to get tax help from the IRS.

This publication is for U.S. citizens and resident aliens only. If you are a resident alien for the entire year, you must follow the same tax rules that apply to U.S. citizens. The rules to determine if you are a resident or nonresident alien are discussed in chapter 1 of Publication 519, U.S. Tax Guide for Aliens.

Nonresident aliens.   If you were a nonresident alien at any time during the year, the rules and tax forms that apply to you may be different from those that apply to U.S. citizens. See Publication 519.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

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Internal Revenue Service
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Useful Items

You may want to see:

Publication

• 559   Survivors, Executors, and Administrators
• 929   Tax Rules for Children and Dependents

Form (and Instructions)

• 1040X   Amended U.S. Individual Income Tax Return
• 2848   Power of Attorney and Declaration of Representative
• 8332   Release of Claim to Exemption for Child of Divorced or Separated Parents
• 8814   Parents' Election To Report Child's Interest and Dividends

Who Must File

If you are a U.S. citizen or resident, whether you must file a federal income tax return depends upon your gross income, your filing status, your age, and whether you are a dependent. For details, see Table 1 and Table 2. You must also file if one of the situations described in Table 3 applies. The filing requirements apply even if you owe no tax.

You may have to pay a penalty if you are required to file a return but fail to. If you wilfully fail to file a return, you may be subject to criminal prosecution.

For information on what form to use - Form 1040EZ, Form 1040A, or Form 1040 - see the instructions in your tax package.

Gross income.   Gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. If you are married and live with your spouse in a community property state, half of any income defined by state law as community income may be considered yours. For a list of community property states, see Community property states under Married Filing Separately, later.

Self-employed persons.   If you are self-employed in a business that provides services (where products are not a factor), your gross income from that business is the gross receipts. If you are self-employed in a business involving manufacturing, merchandising, or mining, your gross income from that business is the total sales minus the cost of goods sold. To this figure, you add any income from investments and from incidental or outside operations or sources.

You must file Form 1040 if you owe any self-employment tax.

Filing status.   Your filing status generally depends on whether you are single or married. In some cases, it depends on other factors as well. Whether you are single or married is determined as of the last day of your tax year, which is December 31 for most taxpayers. Filing status is discussed in detail later in this publication.

Age.   Age is a factor in determining if you must file a return only if you are 65 or older at the end of your tax year. You are considered to be age 65 for 2002 if your 65th birthday is on or before January 1, 2003.

Filing Requirements
for Most Taxpayers

You must file a return if your gross income for the year was at least the amount shown on the appropriate line in Table 1. Dependents should see Table 2 instead.

Deceased Persons

You must file an income tax return for a decedent (a person who died) if both of the following are true.

1. You are the surviving spouse, executor, administrator, or legal representative.
2. The decedent met the filing requirements at the time of his or her death.

For more information, see Final Return for Decedent in Publication 559.

Table 2. 2002 Filing Requirements for Dependents See Exemptions for Dependents to find out if you are a dependent.

If your parent (or someone else) can claim you as a dependent, use this table to see if you must file a return.
In this table, unearned income includes taxable interest, ordinary dividends, and capital gain distributions. Earned income includes wages, tips, and taxable scholarship and fellowship grants. Gross income is the total of your unearned and earned income.
Caution: If your gross income was $3,000 or more, you usually cannot be claimed as a dependent unless you were under age 19 or a full-time student under age 24. For details, see Gross Income Test under Dependency Tests.
Single dependents - Were you either age 65 or older or blind?
	No. You must file a return if any of the following apply. Your unearned income was more than $750. Your earned income was more than $4,700. Your gross income was more than the larger of - $750, or Your earned income (up to $4,450) plus $250.
	Yes. You must file a return if any of the following apply. Your unearned income was more than $1,900 ($3,050 if 65 or older and blind). Your earned income was more than $5,850 ($7,000 if 65 or older and blind). Your gross income was more than - The larger of $750, or your earned income (up to $4,450) plus $250, plus $1,150 ($2,300 if 65 or older and blind).
Married dependents - Were you either age 65 or older or blind?
	No. You must file a return if any of the following apply. Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Your unearned income was more than $750. Your earned income was more than $3,925. Your gross income was more than the larger of - $750, or Your earned income (up to $3,675) plus $250
	Yes. You must file a return if any of the following apply. Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Your unearned income was more than $1,650 ($2,550 if 65 or older and blind). Your earned income was more than $4,825 ($5,725 if 65 or older and blind). Your gross income was more than - The larger of $750 or your earned income (up to $3,675) plus $250, plus $900 ($1,800 if 65 or older and blind).

U.S. Citizens or
Residents Living Abroad

For purposes of determining whether you must file a return, you must include in your gross income all of the income you earned abroad, including any income you can exclude under the foreign earned income exclusion. For more information on special tax rules that may apply to you, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Residents of Puerto Rico

Generally, if you are a U.S. citizen and a resident of Puerto Rico, you must file a U.S. income tax return if you meet the income requirements. This is in addition to any legal requirement you may have to file an income tax return with Puerto Rico.

If you are a resident of Puerto Rico for the whole year, your U.S. gross income does not include income from sources within Puerto Rico. However, include in your U.S. gross income any income you received for your services as an employee of the United States or any U.S. agency. If you receive income from Puerto Rican sources that is not subject to U.S. tax, you must reduce your standard deduction. This also reduces the amount of income you can have before you must file a U.S. income tax return.

For more information, see Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

Individuals With Income From U.S. Possessions

If you had income from Guam, the Commonwealth of Northern Mariana Islands, American Samoa, or the Virgin Islands, special rules may apply when determining whether you must file a U.S. federal income tax return. In addition, you may have to file a return with the individual island government. See Publication 570 for more information.

Dependents

A person who is a dependent may still have to file a return. This depends on the amount of the dependent's earned income, unearned income, and gross income. For details, see Table 2. A dependent may also have to file if one of the situations described in Table 3 applies.

Responsibility of parent.   If a dependent child who must file an income tax return cannot file it for any reason, such as age, a parent, guardian, or other legally responsible person must file it for the child. If the child cannot sign the return, the parent or guardian must sign the child's name followed by the words By (signature), parent (or guardian), for minor child.

Earned income.   This is salaries, wages, professional fees, and other amounts received as pay for work you actually perform. Earned income (only for purposes of filing requirements and the standard deduction) also includes any part of a scholarship that you must include in your gross income. See Publication 520, Scholarships and Fellowships, for more information on taxable and nontaxable scholarships.

Child's earnings.   Amounts a child earns by performing services are his or her gross income. This is true even if under local law the child's parents have the right to the earnings and may actually have received them. If the child does not pay the tax due on this income, the parent is liable for the tax.

Unearned income.   This is income such as interest, dividends, and capital gains. Trust distributions of interest, dividends, capital gains, and survivor annuities are considered unearned income also.

Election to report child's unearned income on parent's return.   You may be able to include your child's interest and dividend income on your tax return. If you choose to do this, your child will not have to file a return. However, all of the following conditions must be met.

1. Your child was under age 14 at the end of 2002. A child born on January 1, 1989, is considered to be age 14 at the end of 2002.
2. Your child is required to file a return for 2002 unless you make this election.
3. Your child had gross income only from interest and dividends (including Alaska Permanent Fund Dividends).
4. The interest and dividend income was less than $7,500.
5. No estimated tax payment was made for 2002 and no 2001 overpayment was applied to 2002 under your child's name and social security number.
6. No federal income tax was withheld from your child's income under the backup withholding rules.
7. You are the parent whose return must be used when making the election to report your child's unearned income.

For more information, see Parent's Election To Report Child's Interest and Dividends in Publication 929, and Form 8814.

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