If you claim that you are exempt on your W-4 and end up owing taxes for your income that year, the IRS may impose a penalty for underpayment of taxes.What does it mean to claim exemption?
Claiming exempt from withholding means that you expect to have no tax liability on your personal tax return at the end of the year. To claim exempt from federal withholding, you need to fill out a W-4 Form and write the word “EXEMPT” on line 7. See Form W-4 and/or Form DE-4 for more details, and to determine if you qualify to claim “exempt”.What is exempt from federal income tax?
Exempt income refers to certain types or amounts of income not subject to federal income tax. Some types of income may also be exempt from state income tax. The IRS determines which types of income are exempt from federal income tax as well as the circumstances for each. Congressional action plays a role as well.