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.
I’m single father of 2, just started new job. I think I messed up by claiming exempt. There was a confusion on my part. If knowing that I have to owe taxes for this coming year can I still claim 3?
When it comes to the number of allowances you should claim, it’s best for you to claim the amount according to the guidelines outlined on the W-4. You can also use the IRS Withholding Calculator to assist you as well. But it would be best for you to speak with your payroll department, as they can better assess your situation for advisement.
Hi! I recently started working at a company, and when it came time to file my w4 form, I was unsure of what exactly to fill out, so I went ahead and wrote down exempt. The prior year I filled for tax refund with 1 dependant. What should I do?
You may need to update your W-4, however, this is not necessary if you plan on paying back any liability that you may owe at the end of the year. Typically, one should only file exempt if they know that they have a refund or are not liable for any taxes for the year.
Can I file Exempt on W-4 if I owe the IRS and have not filed taxes for 2 years.
If you have a liability for prior years and have not filed your taxes for 2 years, I would advise against filing exempt. It is only best to file exempt when you know that you are due a refund or have no tax liability.
I want to have less taken from my check I’m single with one child I dont care if I won’t get a refund this year if I file exempt will it stop taking out all taxes? Or just federal?
When filing your W-4, if you are filing exempt, it will stop taking out taxes for the federal government. State taxes may still be withheld, however, if you are filing exempt, be wary that you may incur a tax liability when you file your return the year after. Typically you should only file exempt when you know that you will not be owing any taxes to the IRS.
I receive a tax refund ever year. I will be receiving a large bonus from my employer. I would like to file exempt on my W-4 form for the bonus and a couple of pay checks. Then switch back to my original W-4 form is this possible. Thanks
The IRS has a tool to determine if you can claim exempt on your W-4 form Simply click here to use this tool.
Most employers tax bonuses at the bonus rate and not what is set up on your W4. Therefore changing your w4 would not impact what gets withheld. I would check with your employer to see how they tax bonuses.