They are a hourly paid employee with our company and will be earning around $25,000/yr when working 40 hrs a week.
2007-08-01 05:07:54 · 3 answers · asked by Andy B 1 in Business & Finance ➔ Taxes ➔ United States
You can only claim EXEMPT from withholding if you had $0 tax liability the prior year and reasonably expect to have $0 tax liability in the current year. Claiming EXEMPT at that income level would be unusual but not impossible. A married couple with several children might be able to do so legally.
There is a $500 penalty for filing a fraudulent Form W-4. If the individual has any tax liability at the end of the year there will be penalties and interest for underpayment of tax in addition to the possible $500 penalty.
2007-08-01 05:20:37 · answer #1 · answered by Bostonian In MO 7 · 2⤊ 2⤋
It means that they do not want any Federal taxes withheld from their paychecks because they know that they will be getting a refund back anyway when they file their taxes next year.
Depending on how many children they have, as well as other circumstances, they could also get Earned Income Credit with that income as well--so why should they pay out taxes all year when they are not going to owe anything on their tax return anyway? That is probably why they knew they could legally claim "Exempt" on their W4 and get more money with each paycheck to support their family.
2007-08-01 12:17:08 · answer #2 · answered by MarineMom 6 · 1⤊ 2⤋
They won't be having federal withholding from their paycheck. But if they are going to be earning around $25,000 they most likely will have a tax liability, and owe a big chunk of change come April 15 next year when they figure out their taxes.
2007-08-01 12:10:15 · answer #3 · answered by Anonymous · 0⤊ 2⤋