Ever wondered what “exempt” means on the W-4 form?
Many people find line 7 of the Form W-4 confusing. Reading through the conditions listed on the form seems fairly straightforward and many write exempt because they meet the two conditions. In reality, when exempt is written in box 7, no federal withholding will be deducted from paychecks. Many tax filers in the lower income bracket get most, if not all, of their federal withholding back when they file their income tax returns. Therefore, if they write in exempt, no federal withholding will be withheld and therefore there will be no federal withholding to refund.
Checking “exempt” could be financially unbeneficial for people who make more than the standard deduction plus the exemptions they would be taking. Since no federal withholding is being deducted from their paychecks, they would be fully responsible for paying the total tax due when they file their annual income tax return.
Click here for a printable Form W-4.