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fpbear
Level 2

Should I claim EXEMPT on the W4 for the rest of the year because of my upcoming solar tax credit?

I just had a large solar system installed and should be receiving about $40K in solar tax credit when I file next year (I paid much more tax than that in W2 withholdings so far this year).   In order to have a bit more cash flow for the next 3 months I am wondering if I can/should change my employer W4 to EXEMPT for the rest of the year.  I am a bit hesitant because of the wording on the form to fill out on my employer website, it says "I certify that I meet both these conditions..  in the prior year NO tax liability, ...." and so on.  That's not true for me, instead it's because I will have a big credit and I'd rather not give the IRS a loan for the next 3 months.  Should I ignore this wording and claim EXEMPT anyway?  I would change it back of course, in January.

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Opus 17
Level 15

Should I claim EXEMPT on the W4 for the rest of the year because of my upcoming solar tax credit?


@fpbear wrote:

I know what you mean.  While I would not forget to undo this in January, I am worried that I don't know how long it takes my company payroll department to process the new W4 and for it to take effect (in both directions, to claim EXEMPT and to undo it).   Therefore I probably will just leave it as-is and take the larger refund next year.


You are not going to claim exempt, because you aren't actually exempt from withholding (and I don't even see a box for it on the current form) but you could add a large dollar amount to line 4b for expected other deductions.  (A credit is worth 2x-4x more than an itemized deduction, I would use 2x to be conservative.) The more you increase line 4b, the lower your withholding will be.  As mentioned, don't forget to change it back in January.   

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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3 Replies
Critter-3
Level 15

Should I claim EXEMPT on the W4 for the rest of the year because of my upcoming solar tax credit?

NO ... I would not do this because inevitably you will fail to undo this next year and you will have a huge balance due + penalties.  You have just a short time left for this tax year so just enjoy a larger than normal refund next year. 

fpbear
Level 2

Should I claim EXEMPT on the W4 for the rest of the year because of my upcoming solar tax credit?

I know what you mean.  While I would not forget to undo this in January, I am worried that I don't know how long it takes my company payroll department to process the new W4 and for it to take effect (in both directions, to claim EXEMPT and to undo it).   Therefore I probably will just leave it as-is and take the larger refund next year.

Opus 17
Level 15

Should I claim EXEMPT on the W4 for the rest of the year because of my upcoming solar tax credit?


@fpbear wrote:

I know what you mean.  While I would not forget to undo this in January, I am worried that I don't know how long it takes my company payroll department to process the new W4 and for it to take effect (in both directions, to claim EXEMPT and to undo it).   Therefore I probably will just leave it as-is and take the larger refund next year.


You are not going to claim exempt, because you aren't actually exempt from withholding (and I don't even see a box for it on the current form) but you could add a large dollar amount to line 4b for expected other deductions.  (A credit is worth 2x-4x more than an itemized deduction, I would use 2x to be conservative.) The more you increase line 4b, the lower your withholding will be.  As mentioned, don't forget to change it back in January.   

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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