Employers must withhold federal taxes from employees’ paychecks, unless the employee is exempt from taxation. The same goes for state taxes if the state imposes an income tax. As an employee, you cannot choose not to have any taxes taken out of your paychecks, unless you’re exempt. If you're not exempt, you may be able to adjust your income tax withholding form so fewer taxes are withheld from your pay.
General Withholding Rule
As a general rule, employees must pay federal income tax, Social Security tax and Medicare tax through withholding. As of publication, only nine states do not require state income tax withholding: Alaska, Tennessee, Texas, New Hampshire, Florida, Nevada, South Dakota, Wyoming and Washington. Under federal law, your employer is supposed to give you a W-4 form to complete upon hiring you. On the W-4, you must put your withholding conditions for federal income tax purposes. If you fail to submit the form, your employer must withhold federal income tax at the highest tax bracket of single filing status with zero allowances. Many states have similar procedures for state income tax withholding purposes.
Income Tax Withholding Exemption
If you meet the qualifications for exempt, you can request that your employer not take any federal or state taxes out of your paychecks. As of publication, you are exempt from federal income tax withholding if you owed no federal income tax in the previous year and do not expect to owe any in the current year. You must have been entitled to a full refund of your federal income tax withheld in the prior year and anticipate a full refund for the present year. You may claim exempt from federal income tax on Line 7 of the Employee’s Withholding Allowance Certificate section of your W-4. To claim an exemption from state income tax, follow your state revenue agency’s procedures.
Not many employees are exempt from Social Security and Medicare taxes, also known as Federal Insurance Contributions Act taxes. You may be exempt from FICA taxes if you’re a student and an employee of a school, college or university. Specific classes of alien employees are exempt from FICA withholding, such as those with J-visas and Q-visas.
Choosing More Allowances
If you need to lower the amount of federal income tax that comes out of your wages, you may adjust your W-4 form by claiming more allowances. The fewer allowances that you claim, the more tax you pay; and the more allowances that you claim, the less tax you pay. To increase your allowances, complete the Personal Allowances Worksheet section and Line 5 of the withholding certificate of your W-4. To avoid owing federal income tax when you file your tax return, claim only the allowances that you’re entitled to. If the state uses an allowance system, you can adjust your state withholding form to have less state taxes taken out of your wages. Claim only the allowances that you qualify for under state law to avoid owing the state government when you file your state tax return.
- Internal Revenue Service: States Without a State Income Tax
- Internal Revenue Service: Withholding Compliance Questions and Answers
- North Carolina Department of Revenue: NC-4
- Michigan State University: Exemption From Federal and State Withholding
- Internal Revenue Service: 2014 Form W-4
- Vanderbilt University: FICA Tax and Exemptions
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