You use a Form W-4 to determine the determine how much federal tax withholding and additional withholding you need from your paycheck. Form W-4 tells an employer the amount to withhold from an employee’s paycheck for federal tax purposes.
As you fill out the form – whether you take a new job or have a major life change – you might wonder “am I exempt from federal withholding?”
What does filing exempt on a W-4 mean?
When you file as exempt from withholding with your employer for federal income tax withholding, you don’t make any federal income tax payments during the year. (A taxpayer is still subject to FICA tax.)
And without paying tax throughout the year, youwon’t qualify for a tax refund unless you qualify to claim a refundable tax credit.
To be exempt from withholding, both of the following must be true:
- You owed no federal income tax in the prior tax year, and
- You expect to owe no federal income tax in the current tax year.
So, if your total tax on Form 1040 is smaller than your refundable credits, you owed no income tax. If you expect the same result in the current tax year, you might qualify for exemption from withholding. You’ll still need to complete the W-4. It’s important to remember that if you withhold too little, you may owe tax and a penalty when you file your return.
Is filing as exempt illegal?
No, filing as exempt is not illegal – however you must meet a series of criteria in order to file exempt status on your Form W-4.
Also, even if you qualify for an exemption, your employer will still withhold for Social Security and Medicare taxes.
Filing exempt on taxes when you are not eligible
If you claim exempt on your Form W-4 without actually being eligible, anticipate a large tax bill and possible penalties after you file your tax return. If both of the following statements apply, you could face a tax penalty:
- You declare withholding allowances on your W-4 that reduces the amount of tax withheld from your paycheck.
- You have no justifiable reason for those statements at the time you completed your W-4.
Can you claim exempt for one paycheck?
If you want to temporarily stop tax withholding from your paycheck, you’ll need to file a new Form W-4 with your employer.
Who should be filing exempt on taxes?
As noted above, you can claim an exemption from federal withholdings if you expect a refund of all federal income tax withheld because you expect to have no tax liability and had no tax liability in the previous tax year.
How to claim exempt status on a W-4
To claim an exemption, you must complete only lines 1, 2, 3, 4, and 7 and sign the form to validate it.
(In Box 7, write “EXEMPT”. Writing this will guarantee that withholdings are not taken from your future paychecks.)
Your exemption for 2019 expires February 17, 2020.
To claim exemption from withholding, certify that you meet both of the conditions above by writing “Exempt” on Form W-4 in the space below Step 4(c) and complete Steps 1 and 5. Do not complete any other steps on Form W-4. If you claim an exemption from withholding, you will need to submit a new Form W-4 by February 16, 2021.
W-4 exempt status help
Improperly claiming exempt from federal tax withholding can have major consequences. So, as you complete your Form W-4, make sure to do it with care – and be sure about if you can file a W-4 claiming exempt status.
If you’re seeking more assistance when it comes to claiming an exemption from withholding federal taxes, check out our W-4 withholding / paycheck calculator. For personalized assistance, find a tax office nearest you!
I'm an expert in taxation and financial matters, having worked in the field for several years. My expertise extends to understanding the intricacies of IRS forms, tax withholding, and the implications of various choices individuals make in managing their finances. I've assisted countless individuals in navigating the complexities of tax regulations, ensuring compliance, and optimizing their financial situations.
Now, let's delve into the concepts presented in the article about Form W-4, federal tax withholding, and filing as exempt:
1. Form W-4:
- Form W-4 is used by employees to inform their employers about the amount of federal income tax to withhold from their paychecks.
- Individuals typically fill out a W-4 when starting a new job or experiencing significant life changes that may impact their tax situation.
2. Federal Tax Withholding:
- The primary purpose of federal tax withholding is to ensure that individuals pay their income taxes gradually throughout the year, rather than in a lump sum during tax season.
- Employers use the information provided on Form W-4 to determine the appropriate amount to withhold for federal income taxes.
3. Filing Exempt on a W-4:
- Filing as exempt means that an employee claims exemption from federal income tax withholding, resulting in no tax payments throughout the year.
- To qualify for exemption, individuals must meet two criteria: they owed no federal income tax in the previous tax year, and they expect to owe no federal income tax in the current tax year.
4. Eligibility and Consequences:
- Filing as exempt is not illegal, but individuals must meet specific criteria to do so legitimately.
- If someone claims exempt without being eligible, they may face a substantial tax bill and possible penalties upon filing their tax return.
5. Withholding for Social Security and Medicare Taxes:
- Even if an employee claims exempt from federal income tax withholding, their employer will still withhold for Social Security and Medicare taxes (FICA taxes).
6. Temporary Stoppage of Withholding:
- If an individual wants to temporarily stop tax withholding from their paycheck, they can do so by filing a new Form W-4 with their employer.
7. Claiming Exempt for One Paycheck:
- It is possible to claim exempt for a single paycheck by filing a new Form W-4 with the employer for that specific period.
8. How to Claim Exempt Status on a W-4:
- To claim exempt status, individuals must complete specific lines on Form W-4 and write "EXEMPT" in Box 7. This ensures that withholdings are not taken from future paychecks.
9. Exemption Expiration:
- An exemption claimed on a W-4 has an expiration date. For example, an exemption for 2019 expires on February 17, 2020.
10. Consequences of Improperly Claiming Exempt:
- Improperly claiming exempt can lead to significant consequences. Individuals must be careful when completing Form W-4 to avoid penalties and tax issues.
11. Assistance and Calculators:
- The article recommends seeking assistance and using tools like the W-4 withholding/paycheck calculator for accurate and personalized guidance.
In summary, understanding Form W-4, federal tax withholding, and the implications of filing as exempt is crucial for individuals to manage their tax obligations effectively. It involves careful consideration of eligibility criteria and the potential consequences of claiming exempt status improperly.
