How Many Times Can You Claim Exempt in a Year?

Claiming “exempt” status for federal income tax withholding means an employer will not deduct any federal income tax from an individual’s paychecks. This status applies only to federal income tax, not to other payroll deductions such as Social Security or Medicare taxes, which will still be withheld. Declaring exempt status does not mean an individual is exempt from paying taxes altogether. Instead, it indicates that, based on specific criteria, no federal income tax is expected to be owed for the year, thus eliminating the need for withholding.

Eligibility for Exempt Status

To qualify for exempt withholding status, an individual must meet two specific conditions set by the Internal Revenue Service (IRS): having no federal income tax liability in the prior tax year (meaning their total tax on Form 1040 was zero or less, or they were not required to file a return due to income below the filing threshold), and expecting no federal income tax liability in the current tax year. If these criteria are met, any income tax withheld would likely be fully refunded when they file their tax return. Claiming this status is typically applicable to certain low-income individuals, some retirees, or students. Incorrectly claiming exemption when qualifications are not met can lead to a significant tax bill and potential penalties from the IRS when the tax return is filed.

Declaring Exempt Status on Your Form W-4

To declare exempt status, an eligible individual must complete Form W-4, Employee’s Withholding Certificate, and submit it to their employer. The individual should fill in their personal information in Step 1, including their name, address, and Social Security number. To claim the exemption, the individual must write “Exempt” in the space provided below Step 4(c) on the Form W-4. After marking “Exempt,” the individual must then complete Step 5 by signing and dating the form. It is crucial that no other sections of the Form W-4, such as those for multiple jobs, dependents, or other adjustments, are filled out when claiming exempt status.

The Annual Requirement for Exempt Status

Exempt status for federal income tax withholding is not permanent; it generally expires at the end of the calendar year. To maintain this status, individuals who claimed exemption in the prior year must submit a new Form W-4 to their employer by February 15th of the following year. If February 15th falls on a weekend or holiday, the deadline is extended to the next business day. If an employee fails to submit a new Form W-4 by this deadline, their employer is required by the IRS to change their withholding. Federal income tax will begin to be withheld as if the employee is single or married filing separately, with no other adjustments or entries in Steps 2, 3, or 4 of the W-4, ensuring that withholding accurately reflects current tax situations and prevents individuals from inadvertently under-withholding if their circumstances have changed.

When Your Withholding Needs Changing

Changes in circumstances throughout the year, such as significant income changes (e.g., starting a second job, a substantial pay raise, or freelance work), can alter one’s tax liability and necessitate a Form W-4 update. Life events, including marriage, divorce, or the addition of dependents, also impact tax obligations and credits, requiring a review of withholding. If an individual no longer meets the two conditions for exempt status due to these changes, they must submit a new Form W-4 to their employer. Filing an updated Form W-4 allows employees to adjust their federal income tax withholding at any time during the year to better match their estimated tax liability. Making timely adjustments helps avoid situations where too little tax is withheld, which could result in a significant tax bill or penalties at the end of the year, or too much is withheld, leading to a smaller paycheck than necessary.