Some Americans might be exempt from filing income taxes because they don’t meet the income requirements to file, or they’re being claimed as a dependent. We’ll cover what being exempt means, what’s needed to claim an exemption from withholding, and more in this article.
What is a federal tax exemption?
When you claim an exemption from withholding on your federal W-4, it means that federal income taxes will not be taken out of your paychecks. As a result of this, you won’t have to pay federal income taxes at the start of the next year. However, just about everyone, whether you’re working a full-time or part-time job, will have FICA taxes deducted from their paycheck.
There’s one exception. If you’re a recognized member of a religious group, like a minister or a part of the Amish community, you can file for an exemption using Form 4029. It’s important to note that if you choose to complete this form, you are waiving Social Security and Medicare benefits.
What are the requirements to be exempt from withholding federal income taxes?
There are special cases in which you may be exempt from withholding federal income taxes from your paycheck. The first reason is cut and dry – you shouldn’t have to pay federal income taxes if you didn’t make enough money ($13,850 for single and $27,700 for married filing joint filers) to meet the requirements to file. The requirements for how much you need to make to pay taxes vary based on your age, income, and filing status.
You may also be able to claim a federal tax exemption if you are being claimed as a dependent. If you were financially reliant upon a family member for the majority of the year, this person could claim your income for tax purposes.
Additionally, to claim exempt from withholding federal taxes, you must have owed no federal income tax in the previous year and expect to owe nothing in the current year.
Can I claim an exemption if I’m not eligible?
It’s important to be certain of your eligibility before claiming a federal tax exemption. If you indicate you are exempt from withholding a portion of your income on your W-4 without meeting the requirements listed above, you may face a tax bill or penalties as a result of picking the incorrect withholding status.
Learn more: All About IRS Form W-4
How to be exempt from withholding
Claiming an exemption from federal withholding is simple. Complete Form W-4 using the following steps:
Step 1 – Enter your personal information
Step 2 – Enter multiple jobs or indicate if your spouse works
Step 3 – Claim dependents and other credits
Step 4 – Claim additional exemptions. To claim exemption from withholding, write “exempt” in line 4(c).
Note: If you plan on claiming exempt from withholding in the future, you’d need to complete a new W-4 following the steps above each year.
Does my state offer tax exemptions?
Most states do not offer tax exemptions. However, if you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming, you are not subject to state income tax. There may be an exception to that if you live in one state and work in another.
Read also: How to File Taxes in States with Reciprocity
What happened to the other federal exemptions?
Form W-4 was overhauled in 2018 to remove personal and dependency allowances. This redesign resulted from major tax law changes due to the Tax Cuts and Jobs Act. Learn more about the changes to Form W-4 and what has replaced allowances.
