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. Hello,

    I have an intern who is about to start his internship with the company on June and will conclude in September. He works full-time and he wants to claim exempt on his taxes so is this possible and is this possible for New York taxes as well ???

    1. Everyone has the right to claim exempt on their W-4s, however whether or not you are fine with having a tax liability at the beginning of next year for taxes owed because you claimed exempt is another problem on it’s own. If they have determined that they will not be owing any taxes when they file their return next year, then there should be no concern with claiming exempt. However it is advised to have taxes withheld and that is dependent on individual situation and income earned.

  2. Good Morning,
    I am a full time student starting in August of this year(2017) and claim myself on my taxes. I am only 23yrs of age and will be 24 in December who is a part time worker who works less than 40hrs a week. Can I claim exempt on my taxes?

    1. It is best if you consult with your payroll department as they will be able to better assess and advise you on whether you should claim exempt. This is dependent on how much you earn and whether or not your parents will be claiming you on their return. Typically the more allowances you claim the less taxes are withheld but you may run the risk of having a tax liability at the end of the year. The general rule is to be as close to zero when filing your tax return, so that you can get the most out of your income earned through the year without having to wait for it in the upcoming year.

  3. I’m married my spouse doesn’t work I have 3 children and my mother in law living with me would I qualify for exempt and if so how long all year or should I only claim partial exempt for the year.

    1. Firstly, if you plan to claim dependents on your tax return, then you cannot claim exempt from taxes. Additionally, to determine if you meet all of the requirements for filing exempt you can refer to the following IRS test.

      1. I am confused as to why if I claim a dependent that I cannot claim exempt. I have no tax liability at the end of the year and everything I paid out I get back. I meet both requirements to file exempt. I have been filing this way for almost 7 years and have had no problems.

      2. That is my understanding but after reading what Michelle wrote about claiming dependents it would make someone think that if they claim a dependent then they cannot file as exempt. I understand you cannot claim any dependents on your w4 if you are wanting exemption from federal but on your tax return you should be able to claim as many dependents as you are entitled to claim.

  4. Hello I filed exempt through my employeI.I told my human resources rep exactly what weeks I was planning on exempting,and he told me the dates I should fill out the paperwork (my w4)and have it turned in by. I did so, and when I got my paycheck it had not been exempted, even though I filled out the forms and had been told that on the day of turning it in that it had cleared and been processed correctly. My question is,is illegal for them to have made an error on my w4 and not have told me about itand if so should I be contacting my local area labor law firm

    1. You can follow up on the discrepancy made on your W-4 form with your employer. If you are looking to take legal action against them then you can consult with a tax attorney to determine if this is your best resolution.

  5. I was on long term disability all last year and earned very little.( Below $5000)I know it’s not considered earned income & it’s not taxed so I won’t be filing for 2016. I did receive my refund from the previous yr 2015. This year I’m starting a part time job. Not married/no kids. Can I file as Exempt?

    1. It’s best to only claim an exemption when you are certain that you will be owing no taxes whatsoever. If for this year you have determined that your return will end up looking about the same as your last year return, you can use that to determine how to file your W-4 this year.

    2. It’s best to only claim an exemption when you are certain that you will be owing no taxes whatsoever. If for this year you have determined that your return will end up looking about the same as your last year return, you can use that to determine how to file your W-4 this year.

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