What is the difference between exempt and non exempt?

Question

I recently got my first job and I did not know which one to claim. I still live with my parents so I put 0 because they claim me but I will still have to file taxes in April because I'm 18. I put nonexempt because an employee told me that way you will get a refund when you file versus exempt you will not. I am confused can someone tell me in english what it means????

Answer 1

Read the instructions right there on the Form W-4.  It's all explained plainly.

You can claim EXEMPT if you had $0 tax liability last year AND reasonably expect to have $0 tax liability this year.  You WILL have some tax liability if you earn more than $5,450 in 2008.  You are also barred from claiming EXEMPT if you have any earned income such as from a job as well as $300 or more in unearned income such as dividends and interest.

Filing 0 as you did is the safest option by far.  If you file EXEMPT and wind up owing taxes, things can get messy for you.  For example the IRS can impose a $500 administrative penalty for filing a fraudulent Form W-4 and that's on top of any tax that you'd owe and have to pay when you filed.  And they can issue a Lock Letter forcing your employer to withhold tax at a rate determined by the IRS regardless of what you're legally entitled to.