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, how to claim your exemption with Form W-4, 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. This exemption expires at the end of the tax year, requiring you to re-evaluate your withholding status for the following year.
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 qualifies you to be tax-exempt?
There are special cases in which you may be exempt from withholding federal income taxes from your paycheck. The requirements for how much you need to make to pay taxes vary based on your age, income, and filing status. You don’t have to pay federal income taxes if you didn’t make enough money to meet the requirements to file.
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.
How to claim tax-exempt on your W-4
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).
When you fill out Form W-4 and indicate any adjustments to your withholding, these changes affect your tax withholding for all pay periods moving forward, not just one paycheck. If you need to adjust your withholding temporarily, you may want to consider submitting a new W-4 form to your employer.
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.
What happened to the other federal exemptions?
Form W-4 was overhauled in 2018 to remove personal and dependency allowances. The allowances were replaced by a system requiring taxpayers to state their filing status, number of jobs, and income adjustments. The new form uses questions to determine the correct federal income tax withholding, simplifying the process.
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 or if your state has a reciprocal tax agreement.
