Exemption Definition

An exemption is when an employee who meets specific qualifications is exempt from paying federal income tax.

Exemption Extended Definition

Employees can claim exemption from federal income tax withholding on Form W-4 if they qualify. If you have an employee who qualifies for complete exemption, do not withhold federal income tax from their wages.

An employee can claim exemption if they meet both of the following:

  • Previous year: The employee had no tax liability and had the right to a refund of all federal income income tax withheld.
  • Current year: The employee plans to have no tax liability and expects a refund of all federal income tax withheld.

Related Articles:
What to Do When an Employee Is Exempt from Withholding
New W-4 Form: IRS Makes Minor Changes to 2023 Form

Last Updated By

Rachel Blakely-Gray | Apr 14, 2023

Check out Our Payroll Software

See a Demo

Back to Top