What Are the Rules on Filing for Exempt Status on a W-4?


Quick Answer

Tax rules allow individuals to claim exemption from withholding on form W-4 if they were entitled to a refund of all federal tax withholding in the prior year because they had no tax liability or they expect a refund of all federal tax in the current year due to having no tax liability, explains the IRS. To qualify for the exemption, taxpayers must complete a W-4 form and give it to their employers by February 15 of each year.

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Full Answer

Not receiving a tax return does not mean a taxpayer has no tax liability or qualifies as exempt, Investopedia notes. No tax liability means that a taxpayer is not responsible for the payment of any tax, which typically requires an annual income of under $15,000, as of 2015. To take the exemption on form W-4, taxpayers do not fill out lines five and six and write "exempt" on line seven.

Taxpayers who are not exempt from withholding indicate the number of withholding allowances they qualify for on form W-4, Ivestopedia explains. The percentage of income withheld each pay period is based in part on the number of allowances indicated. Each allowance reduces tax withholding. Form W-4 has a questionnaire that helps the taxpayer determine how many allowances to claim.

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