What Does Exempt Mean on the W-4?

The Internal Revenue Service provides Form W-4 for employers to keep uniform records for withholding information. Employees complete the Form W-4 before they receive a first paycheck, and those employees who do not file a Form W-4 have taxes withheld at the single rate. Some employees are exempt from withholding if they owed no taxes last year and do not anticipate owing taxes this year. Individuals who work part-time may qualify for no withholding as well.

Exempt Eligibility

At the time of publication, an individual claimed by another person as a dependent cannot earn more than $950 annually or receive more than $300 in unearned income for the year and claim exempt status. An individual who claims himself as a dependent must qualify for exempt status based on last year's taxes and expectation for this year's taxes. The test is two-pronged: You must have received a refund of all federal income taxes withheld last year, and you must expect to receive a refund on all withheld taxes for the current year. Married individuals earning less than $150 a week are exempt from withholding as well.

Form W-4

Complete Form W-4 with allowances calculated from the applicable worksheet that is part of the IRS W-4 form. The allowances you claim do not have to match the exemptions claimed on your federal income taxes. You must complete lines 1, 2, 3, 4 and 7 to claim exempt status. Lines 1, 2, 3 and 4 are identifiers and disclosure of your marital status. Line 7 is your exempt status claim. You must sign and date the form and submit it to your employer. You certify that you qualify for exempt status with your signature.

Exempt Status

An exemption is valid for only one year and expires the middle of February each year. You must file a new Form W-4 to assert your exempt status and qualify for a new exempt status. As a single individual, you do not have to file a federal income tax return with gross income of $9,350 or less in 2010. However, if you had taxes withheld from your income, you may be entitled to a refund of all taxes withheld. You must file a tax return to receive the refund. You may also relinquish your right to exempt status for the current year if you do not file a tax return to reclaim taxes withheld.

Filing a Tax Return

The IRS reviews your income as earned and unearned funds. Earned income is your salary or wages; unearned income is interest, Social Security or income from investments. If someone claims you as a dependent, you must file a tax return with earned income in excess of $5,700 or unearned income in excess of $950, according to IRS Publication 17 of December 2010 for use in 2011. The IRS has other rules that override this general rule. If you are self-employed, you must file a federal tax return if your net income exceeds $400. If you are married filing as a single taxpayer and your spouse itemizes deductions, you must file a tax return if your earned income exceeds $5. If your spouse does not itemize deductions but files separately, you can earn $3,650 before you must file a tax return. If you owe any money to the IRS from credits disallowed, you must file a tax return at any income level. The IRS calls this "recapture," and it takes the credit back before you receive a refund for your withholding. You cannot claim exempt status on Form W-4 if you owe money to the IRS from previous years.