Your employer most likely takes federal income tax, Social Security tax, Medicare tax and state income tax out of your paychecks. Depending on your location, you might pay local income tax and state unemployment tax as well. Family or financial obligations might require that you bring home a bigger paycheck each payday, and one way to do that is to have no federal taxes taken out of your paycheck. Since tax withholding is a legal requirement, however, you can choose to have no taxes withheld from your paychecks only if you meet certain criteria.
Federal Tax Withholding Exemption
If you meet the requirements for exemption from federal income tax withholding, you can claim “exempt” on line 7 of IRS Form W-4. In this case, your employer shouldn’t take any federal income tax out of your paychecks. At the time of publication, you’re exempt if in the last year you had the right to a full refund because you owed no federal income tax, and if in the present year you expect a full refund because you don’t see yourself owing any tax. If you meet these two conditions, you can request to have no federal income tax withheld from your check.
State Income Tax Exemption
If state income tax withholding applies to you, your option to claim exemption depends on your state revenue agency’s requirements. For example, Pennsylvania doesn’t require employees to fill out a state tax form for state income tax withholding purposes; instead, employers withhold at a flat percentage of all taxable wages. In this case, you can’t claim exemption from state income tax withholding. However, as an employee in Georgia, you can claim exemption from state income tax withholding on Form G-4 if you meet the requirements stated on the form.
Changing Tax Strategies
In the past, your employer based your federal income tax withholding amount on the number of deductions you claimed on your Form W-4. The more deductions you claimed, the less tax was withheld from your paycheck. You could file a new Form W-4 at any time and add deductions to it, thereby increasing your paycheck each week.
The Tax Cuts and Jobs Act of 2017, however, eliminated personal deductions from the tax law. As such, the IRS is drafting a new Form W-4 for 2019. Currently available only as a draft, this form eliminates your ability to claim tax deductions for your dependents. Once the IRS finalizes the new form and its instructions, you may need to devise a new strategy for decreasing your federal tax withholding.
FICA Exemption Rules
Most employees aren’t exempt from Social Security or Medicare taxes, which are also called FICA taxes because the Federal Insurance Contributions Act mandates their collection. You’re exempt from FICA taxes if you’re a student at the school that you work for or if you’re a nonresident alien with a specific type of visa, such as F-1, J-1, M-1 or Q-1 visas. FICA taxes are withheld as flat percentages of your earnings. Unless you meet the narrow requirements for exemption, these taxes get taken out of all of your paychecks.
If local income tax withholding applies to you, whether you’re exempt depends on the laws of the local municipality that enacts the tax. For example, at the time of publication, if you work in Pennsylvania, New Jersey or Alaska, you must pay state unemployment tax. There’s no exemption from state unemployment tax. Employers must withhold it from the paychecks of all employees legally required to pay the tax.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.