Am I exempt from federal withholding?

In the United States, employees use IRS Form W-4 to determine the amount of federal income tax and additional withholding held back from their paychecks. IRS Form W-4 tells an employer the amount to withhold from an employee’s wages for federal tax purposes.

As you fill out the form – typically done when you start a new job or have a major life change—you might come across the word exemption and wonder “Am I exempt from withholding?”

Related: For W-4 tips, read our “How to Fill Out a W-4” article.

What does it mean to claim exemption from withholding on a W-4?

If you didn’t have a federal tax liability last year, and don’t expect to for the current year, you may qualify for a federal withholding tax exemption. But what does it mean to claim an exemption? When you tell your employer you are exempt from withholding , your employer will not withhold federal income tax from your paycheck.

And without paying tax throughout the year, you won’t get a tax refund unless you are eligible for a refundable tax credit.

Who can claim an exemption from withholding on taxes?

If you think you can skip withholding, there are strict rules that apply. So, who is exempt from federal income tax withholding? 

To be exempt from tax 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.

In other words, if your total tax on Form 1040 is less than your refundable credits, you might qualify for an exemption from withholding. You’ll still need to complete the W-4 form. And take note, if you aren’t withholding any taxes on your paycheck, you may still owe tax when you file your tax return.

Notes:

• You can use our W-4 Calculator to determine your tax withholding and easily get a new form to provide your employer.  
• Exemption here only refers to withholdings. It’s not the same as claiming a tax exemption on your return, such as a personal exemption on your state tax return.

Is it illegal to claim you are exempt?

No, claiming you are exempt from tax withholding is not illegal—however you must meet certain criteria in order to use this status on your Form W-4. Also, even if you qualify for a federal tax withholding exemption, your employer will still withhold for Social Security and Medicare taxes. This is also called FICA tax.

What happens if you claim an exemption from withholding but aren’t eligible?

If you claim exemption from withholding on your Form W-4 without actually being eligible, expect a large tax bill and possible penalties imposed by the Internal Revenue Service after you file your tax return. Keep in mind that you sign your Form W-4 you’re certifying under penalty of perjury that it is accurate to the best of your knowledge. That’s why it is important that if there is a major change in your life to update your W-4 form accordingly.

Is changing exemptions for one paycheck allowable?

If you want to temporarily stop tax withholding from your paycheck, you’ll need to complete and submit a new Form W-4 with your employer. Then, the employer will not withhold federal taxes from your wages for the next applicable paycheck. You’ll need to remember to change it back. Along with the extra leg work of multiple forms, you’ll want to work closely with your payroll department to get the timing right.  

How to “file” exempt on W-4 forms

Whie the technical term is how to “claim” exempt status on your W-4, some people refer to it as filing exempt. Either way, we’ll tell you how it’s done. Once you know you are eligible to be exempt from withholding, you’re ready to fill out a new W-4. To claim exemption from withholding, take the following steps to complete a new W-4:

1. Enter personal info on step 1.
2. Write “Exempt” on Form W-4 in the space below Step 4.
3. Complete Step 5 by signing and dating the form.
4. Don’t complete any other steps on W-4.
5. Return the form to your employer or payroll department.

Maintaining your exemption from withholding

Because of the steep restrictions around being exempt from withholding, you’ll need to complete a new W-4 for your employer annually (for the next tax year) as your exempt status will expire.

• If you expect to continue to meet the eligibility requirements for being exempt from federal withholding, you should complete a W-4 using the steps above and give it to your employer by February 15. Or the following business day if this date falls on a weekend or holiday.
• If you expect your situation to change and will no longer meet the eligibility requirements for being exempt from federal withholding, you should complete a W-4 and follow the normal steps (not claiming to be exempt) by the February 15 date.

Get help with filling out Form W-4

Improperly claiming exemption from federal tax withholding can have major consequences. So, as you complete your Form W-4, make sure to do it with care.

If you’re not claiming an exemption from withholding federal taxes and simply need to fill out a new form, check out our W-4 tax withholding estimator / paycheck calculator.

For other tax help, let us guide you! Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.