Payroll professionals should be aware that employees do not have much time before the deadline arrives for declaring that they are exempt from federal income tax withholding by using the 2016 Form W-4, Employee’s Withholding Allowance Certificate.
Under standard filing procedures, employees seeking an exemption must file Form W-4 by Feb. 15 of the year indicated on the form to gain the exemption. The exemption from withholding generally is valid until Feb. 15 of the next year.
However, employees have until Feb. 16, 2016, to file a 2016 Form W-4 because Feb. 15, 2016, is Washington's Birthday, a federal holiday. Relatedly, employees that in 2015 gained the exemption using a 2015 Form W-4 but that do not timely file a valid 2016 Form W-4 to continue the exemption would be exempt until Feb. 16, 2016, and withholding would resume Feb. 17.
To claim exemption from withholding using Form W-4, employees must provide personal identification data in boxes 1 to 4, write exempt in box 7 and sign the form.
After an employee who did not file a 2015 Form W-4 submits a valid 2016 Form W-4 claiming an exemption, withholding for that employee must end within 30 days of the employer receiving the form.
Employees may claim exemption from federal income tax withholding when filing a year’s Form W-4 only if they fulfill two conditions. One condition is that they must have owed no federal income tax for the previous year or must have been eligible for a refund of all federal income tax for that year. The other condition is that they must anticipate owing no federal income tax for the year indicated on the Form W-4 they use to claim exemption from withholding.
Exemption from federal income tax withholding cannot be claimed by employees who are claimed as dependents on someone else’s tax return and have income in 2016 of more than $1,050, with more than $350 of that income derived from income-generation methods considered to be unearned, such as income based on interest and dividends.
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