Withholding refers to the employment taxes the federal, state and local government says your employer must take out of your paychecks. If you meet the criteria for exempt, as defined by the respective government, your employer does not withhold the tax from your wages.
Federal Income Tax
You are exempt from federal income tax if you owed no federal income tax in the previous year and do not anticipate owing any in the current year. You cannot claim exempt if someone else can claim you as a dependent on her tax return or if your income will be more than $950 and includes unearned income of more than $300. To claim exempt, fill out a W-4 form and give it to your employer. Claiming exempt is good for one year. To continue claiming exempt in the next year, complete a new form.
State Income Tax
State laws on claiming exempt from state income tax vary. For instance, you are exempt from Pennsylvania income tax if in the previous year you owed no state income tax and do not foresee owing any in the present year. In this case, complete Form REV-419 EX to claim exempt. In California, however, whether you owed federal -- not state -- income tax in the last year and expect to owe any in the current year determines exemption from California income tax.
Social Security and Medicare Taxes
Exemption from Social Security and Medicare, or FICA, taxes does not happen often, because only a few employees qualify for it. Employees who work for colleges or universities at which they are also students are exempt from FICA taxes. Exemption applies only if the student-employee performs services for the purpose of pursuing her course of study. Therefore, if she works more than 40 hours per week and performs work that requires professional knowledge, she’s a professional or career employee and does not qualify for exemption. Also, nonresident alien students and scholars with specific visas are exempt from FICA taxes. You do not need to complete a form to claim exemption from FICA taxes.
Local Income Tax
If the local government imposes local income tax, criteria for exemption from withholding depend on the municipality. For example, for exemption from New York City income tax, review the conditions stated on Form IT-2104-E, and, if applicable, complete the form and give it your employer. If you are an active-duty military employee, the state and local government has specific requirements for claiming exempt from state and local income tax. For example, to claim exempt from Ohio income tax and school district tax, military employees review and complete Form IT 4 MIL.
- American University: Frequently Asked Questions
- Tax Brain: W-4 Tax Calculator
- State W-4: REV-419-EX
- San Diego State University: California State Income Tax Withholding
- IRS.gov: Notice 2004-12
- University of Minnesota: Social Security and Medicare (FICA) Tax Deductions
- New York State Department of Taxation and Finance: IT-2104-E
- State W-4: IT 4 MIL
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