Am I Exempt from Federal Withholding? 

There are lots of reasons why some Americans might be exempt from filing federal income taxes. We’ll cover what being exempt means, the requirements to claim an exemption from withholding, and more in this article. 

What is a federal tax exemption? 

When you choose to file as exempt 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 federal tax withholding? 

There are special cases in which you may be exempt from paying federal income taxes. The first reason is cut and dry – you shouldn’t have to pay federal income taxes if you didn’t make enough money to meet the requirements to file. Find out how much you need to make to pay taxes for your age, income, and filing status here

You may also be able to claim an 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 an exemption from federal tax withholding, 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 exemption. If you claim an exemption without meeting the requirements listed above, you may face a tax bill or penalties as a result of picking the incorrect withholding status. 

How to be exempt from federal 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 exemption from withholding in the future, you’d need to complete a new W-4 following the steps above each year.  

Does my state have 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 – learn more. 

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.  

This article is intended to provide general information to the public and does not provide personalized tax, investment, legal, or business advice. You should seek the assistance of a professional for advice on taxes, investments, and any other financial, legal, or business matter pertinent to your individual situation.

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