How to File Exempt on My Income Tax

Exempt status let's you keep more of your paycheck.

"Exempt" is an income tax withholding status that enables taxpayers to avoid having income tax withheld on their personal income. This is a benefit to low-income earners, since it allows them to receive the full amount of the wages they earn without deductions. Keeping more of your paycheck makes it easier to stay ahead of bills, and a person may choose to earn bank interest on money that otherwise would have been withheld for the government's use. Not everyone qualifies for exempt status, however, and it is important to claim the exemption properly.

Step 1

Obtain federal income tax withholding form W-4 from your employer and complete Lines 1,2,3 and 4.

Step 2

Check the qualifying standards for exemption from withholding on Line 7 of the Form W-4. If you qualify, complete line 7 and return the form to your employer. According to the instructions on Form W-4, you do not qualify to file an exempt status if you earned over $950 and more than $300 of that amount was unearned income, such as interest or dividends, or if you are a dependent on another person's tax return.

Step 3

Obtain from your employer an employee's income tax withholding allowance form for your state, and claim your exemption from state income tax withholding, if that form allows it.

Step 4

If your state does not allow a claim of exempt status to be entered on its standard withholding form, check to see if your state Department of Revenue allows a separate certificate or declaration to be filed for exemption. If so, file as necessary.

Step 5

Renew your W-4 filing upon the expiration of your exempt status, which occurs on February 16 of the year following your previous filing.

Step 6

Update your status by filing a new Form W-4 with your employer, if your circumstances change and you no longer qualify for exempt status under the criteria listed on Line 7.

Step 7

If the U.S. Internal Revenue Service (IRS) or state Department of Revenue contacts you regarding your exempt declaration, respond to their inquiry promptly and fully to avoid any possible penalties.

Warning

If you declare your exemption from withholding, you will have no payments credited toward your tax obligation due the following year. Make sure that you save enough money or have other financial resources to pay any tax liability that may arise.

Make sure that you satisfy the requirements stated on Line 7 of Form W-4 that you file with your employer. Any inaccuracy could lead to the IRS assessing stiff administrative penalties against you for wrongful declaration.

Things You'll Need

  • Federal withholding form W-4

  • Employee's state income tax withholding allowance form

  • State tax exempt certificate or declaration, where necessary

references & resources