Starting a new job inevitably leads to plenty of paperwork. One form you don't want to neglect is your W-4. This tax withholding form lets your employer know how much tax you want withheld from your paycheck. If you don't make enough money to create a tax obligation, you can file exempt on taxes whe you fill out the form, and your employer won't withhold any taxes.
Filling Out Your Tax Withholding Form
The Internal Revenue Service does not state a specific amount of money you can earn and still claim exempt from withholding when you fill out your W-4. The only two factors that determine whether you are eligible to claim exempt is your tax liability from last year, meaning how much total tax you were required to pay if any, as well as your tax liability from the current year. If you did not have a tax liability last year and don't expect to have a tax liability this year, you can claim exempt.
If you can be claimed as a dependent on another person's tax return, the numbers get a bit more specific. As of 2017, you can't claim exempt if you have more than $350 in unearned income and your total income for the year is more than $1,050. Unearned income includes everything from interest on your savings account to stock dividends. If someone such as a parent or friend supports you, you can be concerned a dependent, but you are never considered your spouse's dependent for federal income-tax purposes.
You can claim exempt on your W-2 even if you are required to file a federal income tax returned based on your gross income. You have to file a federal income tax return if you earn more than the minimum amount allowed by law for your filing status. If you did have federal income tax withheld unnecessarily, you must file to get a refund.
You do not automatically qualify for exemption from tax withholding just because you are a student or only work part time. The IRS recommends using its tax withholding calculator, available on the IRS website, to determine whether you can expect to have a tax liability and how much you should have withheld to make sure you don't have to pay at the end of the year. Claiming exempt on your W-4 is only good for one tax year. If you expect to claim the exemption from withholding the next year, you'll need to file a new W-4 by February 15.
2018 Tax Law Thresholds and Changes
The IRS has not yet announced minimum income requirements to have to file a tax return for 2018, but it's likely the numbers will be higher than in previous years thanks to the higher standard deduction. Traditionally, the cutoff has been when you make more than the combination of the standard deduction and personal exemption for yourself or, if married, yourself and your spouse.
Personal exemptions are being eliminated for 2018 and standard deductions will be higher than in previous years. The standard deduction amounts for 2018 are $12,000 for single taxpayers, $24,000 for married couples filing jointly and $18,000 for heads of household. It's likely that if you make below these thresholds you won't have to file.
2017 Tax Law
As of 2017, you have to file a tax return if you are single and your gross income for the year is $10,400 or more. If you are married and file a joint return, you have to file if your combined gross incomes are $20,800 or more. The threshold for filing as head of household is $13,400. If you are a qualifying widow(er), you must file a return if your gross income was at least $16,750.
- IRS: Topic 753 - Form W-4 – Employee's Withholding Allowance Certificate
- IRS: Tax Withholding
- IRS: Publication 501, Exemptions, Standard Deduction and Filing Information
- IRS: Form W-4
- IRS: Publication 929
- IRS: Publication 501, Exemptions, Standard Deduction, and Filing Information
- Forbes: New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.