When you are hired, your new employer hands you a W-4 form to fill out, on which you calculate how many withholding allowances to claim so your employer deducts the correct amount of taxes from your paycheck. If you know you won't owe any taxes for the year – if you are a student who only works the summer months, for example – and you meet Internal Revenue Service criteria, you can request exemption from income tax withholding using line 7 on the W-4 form.
How W-4 Exemption Works
When you elect to claim “Exempt” on a W-4, no income taxes are withheld from your paycheck. However, your employer must continue to deduct Social Security and Medicare taxes. To be eligible to claim Exempt status, you must have had no tax liability the previous year. That is, when you filed your taxes, you were due a refund of all income tax withheld from your pay. In addition, you must reasonably expect that you will not have a tax liability for the current year. In general, your tax liability is zero if your total income is less than the sum of the standard deduction plus the personal exemption most taxpayers can claim on their tax returns. For the 2017 tax year, the standard deduction is $6,350 for single tax payers, or $12,700 if you are married and filing jointly. and the personal exemption is $4,050.
Exemption Limitations for Dependents
There is an additional limitation for claiming Exempt on a W-4 if you can be claimed as a dependent. Income limitations vary depending on whether or not you are under 65, if you are blind, or can claim adjustments or tax credits on an itemized tax return. All dependents must meet the requirement of no tax liability the previous year and no anticipated tax liability in the current year.
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