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IRS.gov Website
Publication 929
taxmap/pubs/p929-006.htm#en_us_publink1000203784

Withholding From Wages(p8)

rule
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

Conditions for exemption from withholding.(p8)

rule
An employee can claim exemption from withholding for 2014 only if he or she meets both of the following conditions.
  1. For 2013, the employee had a right to a refund of all federal income tax withheld because he or she had no tax liability.
  2. For 2014, the employee expects a refund of all federal income tax withheld because he or she expects to have no tax liability.
taxmap/pubs/p929-006.htm#en_us_publink1000192174

Dependents.(p8)

rule
An employee who is a dependent ordinarily cannot claim exemption from withholding if both of the following are true.
taxmap/pubs/p929-006.htm#en_us_publink1000192175
Exceptions.(p8)
An employee may be able to claim exemption from withholding even if the employee is a dependent, if the employee:
  1. Is age 65 or older,
  2. Is blind, or
  3. Will claim on his or her 2014 tax return:
    1. Adjustments to income,
    2. Tax credits, or
    3. Itemized deductions.
The above exceptions do not apply to supplemental wages greater than $1,000,000. For more information, see Exemption From Withholding in chapter 1 of Publication 505.
taxmap/pubs/p929-006.htm#en_us_publink1000192176

Example.(p8)

Guy is 17 and a student. During the summer he works part time at a grocery store. He expects to earn about $1,200 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 gross income will be more than $1,000 (the minimum standard deduction amount) and his unearned income will be more than $350.
taxmap/pubs/p929-006.htm#en_us_publink1000273225

Claiming exemption from withholding.(p8)

rule
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

Renewing an exemption from withholding.(p8)

rule
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.