1. Payroll can use two different methods of calculating tax withholding on bonuses. This trick will work with one method but not the other. They might or might not tell you which method they use.
2. This won't change your overall tax liability for the year, it will just mean that you get a smaller refund or owe tax instead of getting a refund. Be aware that if you end up owing more than $1000 as a result of this gimmick, you will also owe penalties and interest, even if you pay in full when you file.
3. I would suggest using the IRS withholding calculator instead. It will take into account your wages and withholding so far, and your estimated wages for the rest of the year including the bonus, and recommend a withholding number for you. It will also tell you how changing your number will affect your eventual tax refund. You will be better off getting less withheld (more take home) each month for the rest of the year and having the figures be accurate, than try to make your biggest paycheck of the year tax exempt and risk owing too much at the end.
4. You can't legally claim "exempt" since you know you aren't exempt. You could claim an unrealistically high number of allowances to reduce the withholding. But again, if you owe tax at the end of the year as a result of this gimmick you will also owe a penalty. And changing your W-4 does not change your tax owed, just when you pay it.
