Claim Exempt

• To claim exempt on Form W-4, you must complete a new W-4 form and give it to your employer. Provide your name, social security number, filing status and address in boxes 1 through 3. Line 5 asks for the number of allowances you want to claim on the worksheet. Do not make an entry on this line if you claim exempt. Instead, skip to line 7 and write "Exempt." By claiming exempt, you certify that you meet the refund of withholding conditions listed on the form. If you claim exempt, you must give your employer a new W-4 form by February 15 of each new tax year to continue your exemption. If your employer does not receive a new W-4, he must withhold income tax at the rate of a single taxpayer with no withholding allowances, which is the highest income tax withholding rate.
  
  

Social Security and Medicare Taxes

• Claiming exempt from income tax withholding on Form W-4 does not provide an exemption from social security and Medicare tax withholding. Your employer must continue to withhold these taxes from your pay, regardless of the withholding allowances you claim on your W-4. Expect to see these taxes deducted from your gross pay each pay period. Social security and Medicare tax withholding is mandatory, and you may not claim an exemption from the deduction of these taxes.
  
  

State Income Tax

• In many states, employers use your IRS W-4 to determine your income tax withholding for both federal and state income tax. In these states, if you claim exempt on your W-4, you request an exemption from state income tax as well. However, some states such as California have separate state withholding allowance forms that are similar to the IRS W-4 form. If your employer requires you to complete a federal and state withholding allowance form, you must also claim exempt on the state form to receive full exemption from income tax withholding. Claiming exempt on your state withholding allowance form only applies for an exemption from state income tax withholding. If your state requires mandatory employee contributions to the state unemployment or disability fund, your employer must still deduct these taxes from your pay.
  
  

Effect of Claiming Exempt

• Claiming exempt may cause you to owe taxes at the end of the year because you have no withholding credits to offset the tax due on your income. Income tax is calculated on all your sources of income, not just the income from your job, so predicting the tax consequence of claiming exempt may be difficult. If you have questions concerning the amount of tax that should be withheld from your paycheck to prevent a tax balance at the end of the year, use the IRS tax withholding calculator provided on the IRS.gov website (see Resources).