Am I Exempt from Federal Withholding?
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 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, you won’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 Calculator. For personalized assistance, find a tax office nearest you!
All or a portion of your tax refund was taken to pay non-tax debt. Learn more about IRS letter 3179C from the tax experts at H&R Block.
Read the IRS definition of an installment agreement for businesses and get more insight from the tax experts at H&R Block.
Learn more about form CP60, why you received it, and how to handle an IRS CP60 notice with help from the tax experts at H&R Block.
If you owe taxes and you can’t pay them all, you have options. Read H&R Block's guide to the types of IRS installment agreements - and how to figure out which one is right for you.