W4 Questions: How Would I Know If I Am Exempted?

One of the most prevalent W4 questions is whether or not a person can claim exemption from withholding taxes. One general misconception is that only unemployed people are exempted from these taxes; but that is not necessarily so. Another misconception is that once you are declared exempted from withholding taxes, you skip filing W4 forms altogether. Again, that is not the legal way of doing so.

First of all, you can be working and be exempted from withholding taxes at the same time. If you did not declare any federal tax liability from the previous year; and you do not particularly think that you can do so for the incoming one, then yes, you may declare yourself exempted. Also, as stated in the Personal Allowances Worksheet, you (and your spouse, if you have one) can be exempted if your total annual income is less than $850; and that you do not particularly expect to receive more than $300 from unearned income such as investments in dividends and stocks.

On the other hand, if a person declares you as a dependent on his or her tax return, then you cannot file for exemption anymore. At the same time, you also cannot claim tax allowance on Question A of the Personal Allowances Worksheet.

Submitting a W4 is still essential if you are legally declared as exempted from withholding taxes. For legal purposes, you still need to submit the Employee’s Withholding Allowance Certificate with filled lines for 1-4, 7, the signatory box and the date box.

December 15 2008 12:21 am | W4 Tax Information

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