Employers generally withhold federal income tax, social security tax, and Medicare tax from an employee's wages. If the employee claims exemption from withholding on Form W-4, the employer will not withhold federal income tax. The exemption from withholding does not apply to social security and Medicare taxes. taxmap/pubs/p929-006.htm#en_us_publink1000203785
An employee can claim exemption from withholding for 2010 only if he or she meets both of the following conditions.
- For 2009, the employee had a right to a refund of all federal income tax withheld because he or she had no tax liability.
- For 2010, the employee expects a refund of all federal income tax withheld because he or she expects to have no tax liability.
An employee who is a dependent ordinarily cannot claim exemption from withholding if both of the following are true.
- The employee's total income will be more than $950, the minimum standard deduction for 2010.
- The employee's unearned income will be more than $300.
An employee may be able to claim exemption from withholding even if the employee is a dependent if the employee:
- Is age 65 or older,
- Is blind, or
- Will claim on his or her 2010 tax return:
- Adjustments to income,
- Tax credits,
- Itemized deductions, or
- A higher standard deduction for real estate taxes, a net disaster loss, or state or local sales or excise tax on the purchase of a new motor vehicle after February 16, 2009.
For more information, see Exemption From Withholding
in chapter 1 of Publication 505, Tax Withholding and Estimated Tax.
Guy is 17 and a student. During the summer he works part time at a grocery store. He expects to earn about $1,000 this year. He also worked at the store last summer and received a refund of all his withheld income tax because he did not have a tax liability. The only other income he expects during the year is $375 interest on a savings account. He expects that his parents will be able to claim him as a dependent on their tax return. He is not blind and will not claim adjustments to income, itemized deductions, a higher standard deduction, or tax credits on his return.
Guy cannot claim exemption from withholding when he fills out Form W-4 because his parents will be able to claim him as a dependent, his total income will be more than $950, the minimum standard deduction amount, and his unearned income will be more than $300.taxmap/pubs/p929-006.htm#en_us_publink1000203789
To claim exemption from withholding, an employee must enter "Exempt" in the space provided on Form W-4, line 7. The employee must complete the rest of the form, as explained in the form instructions, and give it to his or her employer. taxmap/pubs/p929-006.htm#en_us_publink1000203790
An exemption from withholding is good for only one year. An employee must file a new Form W-4 by February 15 each year to continue the exemption.