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,
Employee's Withholding Allowance Certificate, the
employer will not withhold federal income tax. The exemption from
withholding does not apply to social security and Medicare taxes.
Conditions for exemption from withholding.
An employee can claim exemption from withholding for 2002 only if
he or she meets both of the following conditions.
- For 2001, the employee had a right to a refund of all
federal income tax withheld because he or she had no tax
liability.
- For 2002, the employee expects a refund of all federal
income tax withheld because he or she expects to have no tax
liability.
Dependents.
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 the minimum
standard deduction amount. This amount was $750 for 2001, but may be
higher for 2002. Check the instructions for the 2002 Form W-4
for the correct amount.
- The employee's unearned income will be more than
$250.
Exceptions.
An employee who is age 65 or older or blind, or who will claim
adjustments to income, itemized deductions, or tax credits on his or
her 2002 tax return, may be able to claim exemption from withholding
even if the employee is a dependent. For more information, see the
discussions under Exemption From Withholding in chapter 1
of Publication 505,
Tax Withholding and Estimated Tax.
Example.
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 $275 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, 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 the minimum standard
deduction amount, and his unearned income will be more than $250.
Claiming exemption from withholding.
To claim exemption from withholding, an employee must write
"EXEMPT" in the space provided on Form W-4. The employee
must complete the rest of the form and give it to his or her employer.
Renewing an exemption from withholding.
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.
Previous | First | Next
Publication Index | 2001 Tax Help Archives | Tax Help Archives | Home