Updated: Jan 1
You can’t afford to take chances when it comes to dealing with the IRS. You need to know what you’re doing or hire a professional that knows what they are doing and will clearly communicate with you the things they need from you to ensure you are on the right track with the IRS. Today we’re going to cover:
What is a W-4
Who is Exempt From Withholding
This post is for informational purposes only. Consult your tax professional or the IRS website about your specific tax situation.
What is a W-4
The w4 is a tax form used by your employer to tell them how much of your income you would like withheld and paid to the IRS. If too little is withheld you generally will owe when you file your tax return, which can result in an underpayment penalty. On the flipside if you withhold too much you will generally get a refund. After the Tax Cuts and Jobs Act was passed, the w4 was designed to help taxpayers receive more of their money throughout the year so following the instructions on the form will result in getting as close as possible to breaking-even, not owing and not getting a refund.
It is important that you fill out a new w4 each time you start a new job and each time there is a major life change.
Who is exempt from withholding
Not all taxpayers are obligated to have taxes withheld from their wages. These taxpayers may be exempt from withholding on their w4. Being exempt is not common but you are eligible if you meet the following criteria:
You had no federal income tax liability in the prior year and you don’t expect to have on this year
You had no federal tax liability in the prior year (2020) if your total tax on line 24 of your 1040 or 1040-SR is 0 OR
You were not required to file a return because your income was below the filing threshold for your filing status.
You agree to have no taxes withheld from your wages
If you meet these criteria, congratulations you may file exempt! Beware: this means that NO taxes will be withheld from your wages. You may write “Exempt” in the space below step 4(c). Complete Steps 1(a), 1(b), and 5.
If you are unsure, the IRS has a Tax Withholding Estimator to assist you.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Limitless Financials, we are here to assist you with your tax issues and preventative care.