If you put exempt on your W-4 your employer would not withhold federal taxes from your weekly paycheck. If you do not have a tax liability then you simply won't get a refund of what you paid in. Depending on your situation, you still may have a refund from refundable tax credits such as Earned Income Tax Credit if you qualify.
If you actually do have a tax liability you will have to pay in when you file your taxes.
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Again, if you claimed exempt on your W-4 and your employer did not withhold any taxes from your pay during the tax year, then at tax filing time you will owe the IRS and are expected to pay in full at that time.
There's also the possibility that you will be assessed an additionally under withholding penalty if you claimed exempt, when you were in fact not exempt.
My daughter will be earning $6K this year which is under the federal and state limits of income required to file, so she will not owe the IRS any money. But, she had a tax liability of $107 last year. Is there any penalty or is it illegal to file exempt this year since she wont owe any money but she had a tax liability last year? I can't understand what that rule is for.
If her income is going to be that small this year then no fed/state withholding should be taken so filing exempt if not needed. https://www.irs.gov/help/ita/can-i-claim-exemption-from-withholding-on-form-w-4
Exemption from Withholding
If an employee qualifies, he or she can also use Form W-4 to tell you not to deduct any federal income tax from his or her wages. To qualify for this exempt status, the employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year. A Form W-4 claiming exemption from withholding is valid for only the calendar year in which it's furnished to the employer. To continue to be exempt from withholding in the next year, an employee must give you a new Form W-4 claiming exempt status by February 15 of that year. This date is delayed until the next business day if it falls on a Saturday, Sunday or legal holiday. If the employee doesn't give you a new Form W-4, withhold tax as if he or she is single with no other adjustments. However, if you have an earlier Form W-4 (not claiming exempt status) for this employee that's valid, withhold as you did before.
Taxes are still being taken out at this income level, but they are small. But, still wont have to file next year since income level will be low. But, what is the penalty from IRS if you had a tax liability last year and filed exempt for 2020 and are exempt? What does having a tax liability from last year have to do with filing exempt this year?
But, IRS says you can't file exempt if you had a tax liability for the previous year. My daughter had a tax liability of $100 in 2019, but for this small amount will IRS care and will she still be able to file exempt in 2020 since she will be making under $10K and have no tax liability?
The penalty for claiming exempt ONLY is applied if she will owe on the return ... so either click the exempt option OR add some dependents on the W-4 line 3 or deductions on line 4b to do a "workaround" like we used to do by claiming more exemptions.
Is there a penalty if you file exempt on W4 for 2020 (will not have enough income to have to pay taxes)but had a tax liability in 2019? Is there a minimum tax liability that the IRS will look at? Previously owed $107 in 2019.
NO ... stop worrying about this ... your kid will not have an issue if their income is below the filing requirement. However you do have the option to add dependents or deductions on the new W-4 form to have less withheld like we used to doctor the old forms by adding exemptions. OR do nothing and just get any excess withheld on the tax return which is not really then end of the world.
But, the IRS law states that you must have also had no tax liability in 2019 in order to claim exempt.
What is the penalty if you file exempt and you don't owe taxes but did have tax liability in 2019?
No that is not true for 2020. IRS rules state that you cannot file exempt if you had any tax liability in the previous year. Don't want to file tax return if don't have to but had small tax liability in the previous year. So what would the IRS do? Access a penalty?
OK ... if you don't want to claim exempt AND if by claiming only SINGLE they are still taking out more withholding than you want then simply do one of the 2 things I already told you to do ... either add dependents or deductions in excess of the standard deduction. This is the only way to adjust the withholding on this new W-4 form and is similar to what we used to do with the old W-4 forms when we added exemptions (which are no longer an option). WHAT YOU CLAIM ON THE W-4 DOES NOT AND MOST TIMES DO NOT MATCH WHAT YOU ACTUALLY CLAIM ON THE TAX RETURN. Your only other choice is to let the excess withholding happen and just file a return at the end of the year for a refund ... again not the end of the world.
FYI ... for those with AGI of $69K or less in 2019 the IRS has 10 FREE FILE options to choose from ... so it will not cost anything to file for that refund next year ... no harm no foul ... https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free