Tread carefully before claiming exempt on your W-4 form.
Your W-4 is filed with your employer. Based on a number of allowances and exemptions you claim, your employer will withhold a certain amount of your income from each paycheck to cover taxes owed to the IRS. If you claim EXEMPT on your W-4, it means that no taxes will be taken out of your paycheck throughout the year to cover what you may owe to the IRS. Claiming exempt does not apply to everyone. Let’s find out why.
Am I eligible to claim exempt on my W-4?
If you want to claim exempt on your W-4, both of the following need to be true:
- For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability.
- For the current year, you expect a refund of all federal income tax withheld because you expect to have no tax liability.
If one or both of these are false, then you will not be eligible to claim exempt on your W-4.
Are there any exceptions?
In some cases, claiming exempt is just not an option. Below are some reasons why it may not be for you:
- If your income is $950 or more and at least $300 of that is from un-work-related income (ie: interest or dividend income), then you cannot claim exempt from taxes.
- If you plan to claim dependents on your tax return, then you cannot claim exempt from taxes.
- If you will be itemizing your deductions on your tax return for the year, then you cannot claim exempt from taxes.
- If you are Age 65+ or blind, you must use IRS Worksheet 1-3 or 1-4 to determine if you can claim exempt.
I’m EXEMPT for tax purposes. How do I report that?
After doing some research and realizing that you are, in fact, eligible to claim EXEMPT on your W-4, you’ll need to report that. On your W-4, leave box 5 blank. If you have an amount in Box 5, that takes precedence over Box 7.
Box 7 is where you will simply write the word “EXEMPT”. This will ensure that no withholdings are taken from your paychecks.
What if I claim exempt on my W-4 without being eligible?
You can say hello to a pretty hefty tax bill after filing your tax return along with possible penalties. You are essentially the one responsible for what you report on your W-4. If it is incorrect, the IRS won’t let that slide come time to file your taxes. You’ll be issued a tax due amount with further instructions on how much you owe and payment options.
You could be facing a $500 penalty fee if both of the following are apply to you:
- You make statements or claim withholding allowances on your W-4 that reduce the amount of tax withheld from your paychecks.
- You have no reasonable basis for those statements or allowances at the time that you complete your W-4.
Although penalties from the IRS seem intimidating and sometimes just down-right unfair, they shouldn’t scare you out of claiming something you are eligible for. If you make an honest mistake, you won’t be penalized. It happens. These penalties and strict guidelines are instated in order to keep some sort of order in an organization which is literally trying to cater to the entire nation.
Is there automatic exemption for students?
Although students are loved in the retail and food industries with free fountain sodas at Chipotle and a 15% discount at Kate Spade, the IRS (unfortunately) doesn’t offer the same. Students are advised by the IRS to follow the same guidelines as other taxpayers.
Not to worry, though, students! There is a bright side after all. You may not be automatically exempt from income taxes but you are exempt from FICA (aka social security and Medicare) as long as you are enrolled as at least a half-time student.
When in doubt, ask for help!
It’s easy to fall into the IRS trap filled with tax jargon and W-4 confusion. For many of us, taxes are a thought in our minds only once a year. That’s why we’re here to help you. If you have a tax question and need help preparing your tax return for the year, reach out to our tax experts here at Rapidtax via livechat, email or phone.
As an employer- Can you refuse to allow an employee to file “exempt” on the W-4?
Basically… can you tell them they CANNOT file” exempt’ if you are their employer??
Where would I find this clarification in the IRS.gov website?
Thank you!
You can advise the employee to not file exempt, as well as provide them the clause on the W-4 that indicates, “Under penalties of perjury, I declare that I have examined this certificate and, to the best of my knowledge and belief, it is true, correct, and complete”. However, they are still filing this out on their own discretion, if you are concerned that you will be liable, you do not need to worry as you will not be held liable.
If an employee makes exempt on their W4, should the gross wages still appear in box 1?
If you are requesting what the information in box 1 on the employee’s W-2 should indicate, it should report how much you paid them for the year. The W-4 is separate from the W-2, however, box 2 or taxes withheld should remain empty, as they are requesting that their income earned does not get withheld.
Hello,
My husband’s paycheck are being garnished the full 25%, but he is head of household and both of our checks are no longer enough to pay our bills. We have 3 children, one on the way and we can barely afford groceries let alone all of our other bills. I read a few things online that my husband can claim head of household exemption so they cannot garnish his wages. Is this true or what are we to do?
Thanks,
Natasha
If you are married, claiming head of household is not an available status for you to file under. It may be best in your situation, would be to reach out to an IRS representative for further advisement.
Hi, I’m a minor who just started working part time, and one of my coworkers told me that I can go exempt on my paychecks. Is this true? If not what do I actually need to be claiming?
In order to claim exempt, you must not make over the standard deduction amount on a tax return for the specific year. If you are being claimed by someone else on their return, in your case, this may be your parents, this situation is applicable.
If you are not being claimed as a dependent for the year, you may claim the exempt status, only if you make less than the standard deduction plus the exemption amount for the year.
It is safe to claim 1 allowance if you are a dependent or 2 if you are claiming yourself.
Hi i have never done taxes i have been a dependant for my whole life and now i have a job that is 6 days 10 hour shifts and i want to claim exempt for at least a month what is my best bet? I am single unmarried didnt pay taxes last year because i was a dependant
If you wish to claim exempt for at least a month, it’s best for you to keep track of when that month is over. There is no guarantee that you would not have a tax liability because of a whole month of having an income being tax-exempt. You can, however, speak to your employer after that month to change your W-4.