When you file a W-4 requesting an exemption from federal income tax, your employer doesn’t make any federal tax deductions from your pay. However, to legally qualify as exempt, the Internal Revenue Service requires that you did not pay any tax in the previous tax year and don’t expect to owe or pay any in the year covered by the W-4 form that you give your employer.
W-4 Filing Requirements
Federal tax laws and IRS policy require that you pay a portion of your estimated income tax when you earn or receive income. Your employer uses the information that you submit on your form to calculate your federal tax deductions for the current calendar year. Using formulas from the IRS, your employer divides your total estimated tax by the number of pay periods. Your employer then makes the required deductions from every paycheck.
Unless you have a status change, such as marriage or birth of a dependent, most employers expect to use the same information on your W-4 for an entire tax year. In fact, you usually don’t need to file a new W-4 every year because your employer reuses the information in your personnel file until you make a change.
2020 Form W-4 Changes
The IRS introduced a revised Form W-4 for the 2020 tax year. The 2020 form no longer has a box to check to request exemption from federal income tax. The new Form W-4 also eliminates calculations that you must complete before you can submit an exemption request to your employer.
Use IRS Tax Calculator App First
Even if you didn’t pay income tax in the previous year, don’t assume that you will not pay any taxes during the current year. The IRS can charge you a $500 penalty for deliberately submitting information on your W-4 that leads to insufficient withholding. It’s a good idea to use the IRS Tax Withholding Estimator app to avoid a surprise tax bill and possible penalties.
This app also helps with income tax calculations when you have more than one job. Married people who don’t file separately can use the calculator and get more accurate estimates of correct W-4 withholding for each person based on your tax filing status. The tax estimator also helps you calculate what you might need to revise on the 2020 Form W-4 for personal status changes such as buying a home.
Request Exemption on 2020 Form W-4
IRS instructions for the 2020 revised Form W-4 allow you to claim your income tax exemption by writing the word “EXEMPT” in the empty space under Step 4c on the form. You also need to provide information for Steps 1a and 1b. Enter your name, address and Social Security number. Skip Step 1c, Filing Status.
Don’t enter information in any other steps on the form except Step 5. Here, you sign and date your W-4 form. Remember that your signature is also an attestation of the accuracy of the information you are submitting.
FICA Payroll Deductions
Filing as exempt from federal taxes does not eliminate all federal government deductions from your pay. Your employer will continue to deduct your mandatory Federal Insurance Contributions Act contributions from your gross pay. Your FICA tax contribution of 7.65 percent includes 6.2 percent for Social Security and 1.45 percent for Medicare, according to the IRS.
Carol Luther has published feature articles in print magazines, ghostwritten blogs, and produced digital content since 2007. She has published personal finance and small business articles for the Houston Chronicle, Mahalo, the Nest, USA Today, Wahm, and Zacks. Carol has designed, implemented and managed multi-year, multimillion-dollar domestic and international projects services for higher education, nonprofits, and small to medium businesses for more than 20 years.