When Can I Claim Exempt on My W-4?

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:

  1. For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability.
  2. 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:

  1. You make statements or claim withholding allowances on your W-4 that reduce the amount of tax withheld from your paychecks.
  2. 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.

147 Replies to “When Can I Claim Exempt on My W-4?”

  1. When I filled my tax return I ended up owing the state instead. My income doubled or tripled from the year before. I believe my exemptions for IRS and state is 0. I need to to increase money withdrawn from the checks 3% towards IRS and state but how or what do I write down so I know I will get something back instead of owing the state and IRS?

  2. my 16 year old daughter is filling out a W4 for her very first part time job in California. She will start work June/July 2018 & will probably make no more than $4000 for the entire year. As her mother, I claim her as a dependent on my taxes.
    Question: I wanted to select ‘Exempt’ for her in Line 7 of the W4 – but am unsure if she can due to the first condition of:
    – Last year I had a right to a refund of all federal income tax withheld because I had no tax liability,…
    Technically, this is a true statement, since she didn’t work (& has never had a job) – but is this still a true statement per W4 requirements? Can she file ‘Exempt’ this being her first job?

  3. I’m working full time and married i have claimed head of house hold and all three of my kids my federal allow is 7 already and my wife just got a job we are not really sure what she should put down weather she should do exempt or not and advice?

  4. Hello,

    I owed money for my 2016 taxes which I arranged to pay in monthly installments. It was not a lot, but I could not pay it all at once. When I filed my 2017 taxes, I was owed a refund and the remaining amount that I owed from 2016 was deducted from my refund. I was sent what was left as a refund. My question is, could I claim tax exempt for a few months now or would I have to wait until next year?

    Thank you,

  5. Hello,
    I am wondering since I am exempt… do I still have to fill out the 1040 tax form. I was struggling with understanding what to fill out since most of the things on that form do not apply to me.

    Thank you,

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