Federal income tax withholding exemption

Employers withhold federal income taxes from their employees’ income as it’s mandated by the Internal Revenue Service. Anyone that’s making more than $12,550 during the tax year is required to file a federal income tax return, and it makes sense to withhold taxes from those peoples’ wages. What if you’re a nonfiler that’s picking up a part-time job that doesn’t earn you much? That’s where you might consider claiming exempt status from federal income tax withholding. 

Employees provide their tax information to their employers by using Form W-4. The same form is used for claiming exempt status from federal income tax withholding. Here is how to claim exempt status from federal income tax withholding for 2022 taxes.

Fill out Form W-4

Fill out the first part of Form W-4 where you enter your personal information such as name, filing status, and Social Security Number. Then, write down exempt between the lines Step 3 and 4. Complete the Step 5 and you’re done!. This is all you need to do to claim exempt status from federal income tax withholding. 

While claiming exempt status is quite easy, make sure that you file another Form W-4 if your income is going to exceed the threshold and you won’t be a nonfiler anymore. In a situation where the federal income tax withheld during the tax year is $0 or less than 90 percent of your tax liability, you will get hit with under withholding penalties that will increase your tax bill. 

Frequently asked questions about withholding

Where are the allowances on Form W-4

The allowances on Form W-4 is removed in 2020. The Internal Revenue Service brought these changes to simplify the determination of withholding taxes. Rather than claiming allowances, taxpayers will now enter their anticipated tax information that decided the number of allowances to claim.

How withholding tax works?

Withholding federal income taxes work very simply. Your employer takes a portion of your income and forwards it to the Internal Revenue Service every quarter. The amount forwarded is the federal income tax you pay. If the amount of income taxes paid is more than the actual amount owed, you’ll get it back in your tax refund. If not, you’ll have to pay the remaining liability by April 15.

How to stop withholding taxes?

Stopping withholding federal income taxes mean claiming an exemption. Follow the steps explained above and your employer won’t withhold income taxes from the wages, salaries, tips, and other compensation you earn.

Can withholding tax be refunded?

Yes! The amount withheld from your paychecks can be refunded, but not in ways that you may want. The withholding refunds are related to the amount you owe in taxes and the total amount withheld. At the end of the tax year, everyone who’s required to file a return files one and figures out the tax liability. If the money withheld is more than tax liability, the IRS will issue a refund, and that’s how the withholdings are refunded.

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