Taxes?? Am I Exempt??

Question

I am 17 and a full time student/dependent. Soneone told me that i shouldn't have to be paying taxes out of my paycheck everyweek. Then i was told that if i choose to be exempt i will just have to pay it back at the end of the year rather than getting money at the end of the year. Is that true?

Answer 1

If you are working as an employee, and expect to make under $5450 total for the year, and didn't have any tax liability last year, then you can claim exempt and they won't take anything out for federal income tax.  Since your refund is just giving you back any overpayment when you file, you would of course get no refund since there wouldn't be any overpayment to refund.  If you end up making over $5450, then yes you'd have to pay at the end of the year - if you make less than that you would owe any tax.

In any case, they'll take out 7.65% for social security and medicare - filing a W-4 as exempt doesn't change that.  They might or might not take anything out for state or local taxes, depending on where you live.

Answer 2

There are some taxes that are going to come out no matter what.  Your pay is reduced by 7.65% for Social Security and Medicare.  You may also have small amounts taken out for federal or state unemployment insurance.  These taxes will not be refunded to you.

If your income is below $5,450, you will not owe any federal income tax.  You could fill out Form W-4 and mark yourself "exempt" and no federal income tax would be taken out.  Your employer has this form or you can print it out at irs.gov.

There may also be a form for state tax withholding.  States differ in how income is taxed, and it is possible you may pay state income tax even though no federal tax is taken out.

Answer 3

They will take taxes out of your check because its the law for the business to do so.  If you are exempt, which you very well could be, you will get it all back come tax return time. (federal tax, that is.  You will still have to pay state tax and social security.)

Answer 4

If you know for sure that you'll get all your taxes refunded, you could reduce you're payments.

However, you run the risk that if you don't pay enough taxes, during the year, you will be charged a penalty.