In terms of tax exemptions in 2011, to qualify as your dependent, a person must:

• Be your child, stepchild, grandchild, adopted child, great grandchild, son-in-law or daughter-in-law, father-in-law or mother-in-law, brother-in-law or sister-in-law, parent, brother, sister, grand parent, stepbrother or sister, half brother or sister, and if blood related then your aunt, uncle, cousin, niece or nephew

• Receive less than $3,650 gross income unless the dependent is your child or under the age of nineteen

• Receive more than one-half of his or her financial support from you

• Not file a joint return with his or her spouse

• Be a resident of the US, Canada, or Mexico

To a limited point, there are many types of income and benefits that can be exempt from income taxes, depending on how they were received. Educational scholarships, gifts, inheritances, combat pay for military personnel, income from local bonds, employee discounts, payments for personal injuries, and life insurance policies are all examples of potential exemptions.