Page 9 - Tax withholding and Estimated Taxes

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
IRS review of your withholding. Your with- Use Figure 1-A to help you decide whether Your claim of exempt status may be re-
holding or any claim for a complete exemption you can claim exemption from withholding. viewed by the IRS. See IRS review of your with-
from withholding is subject to review by the IRS. Don’t use Figure 1-A if you: holding, earlier.
Your employer may be required to send a copy • Are 65 or older,
of the Form W-4 to the IRS. There is a penalty • Are blind, An exemption is good for only 1 year.
for supplying false information on Form W-4. • Will itemize deductions on your 2020 re- You must give your employer a new Form W-4
See Penalties, later. turn, or by February 15 each year to continue your ex-
If the IRS determines that you have oversta- • Will claim any tax credits on your 2020 re- emption.
ted your withholding or can’t claim a complete turn.
exemption from withholding, the IRS will issue a These situations are discussed later. Supplemental Wages
notice that specifies the withholding arrange-
ment permitted for the employee (commonly re- Students. If you are a student, you are not au- Supplemental wages include bonuses, commis-
ferred to as a “lock-in letter”) to both you and tomatically exempt. If you work only part time or sions, overtime pay, vacation allowances, cer-
your employer. during the summer, you may qualify for exemp- tain sick pay, and expense allowances under
The IRS will provide a period of time during tion from withholding. certain plans. The payer can figure withholding
which you can dispute the determination before on supplemental wages using the same method
your employer adjusts your withholding. If you Example 1. You are a high school student used for your regular wages. However, if these
believe that you are entitled to claim complete and expect to earn $2,500 from a summer job. payments are identified separately from regular
exemption from withholding or that the IRS de- You don’t expect to have any other income dur- wages, your employer or other payer of supple-
termination was otherwise incorrect, you must ing the year, and your parents will be able to mental wages can withhold income tax from
submit a new Form W-4 and a written statement claim you as a dependent on their tax return. these wages at a 22% flat rate under certain cir-
to support your claims made on Form W-4 that You worked last summer and had $375 federal cumstances as explained in the section on sup-
would decrease federal income tax withholding income tax withheld from your pay. The entire plemental wages in Pub. 15.
to the IRS. Contact information (a toll-free num- $375 was refunded when you filed your 2019
ber and an IRS office address) will be provided return. Using Figure 1-A, you find that you can Expense allowances. Reimbursements or
in the lock-in letter. At the end of this period, if claim exemption from withholding. other expense allowances paid by your em-
you haven’t responded or if your response isn’t ployer under a nonaccountable plan are treated
adequate, your employer will be required to Example 2. The facts are the same as in as supplemental wages. A nonaccountable plan
withhold based on the original lock-in letter. Example 1, except that you also have a savings is a reimbursement arrangement that does not
After the lock-in letter takes effect, your em- account and expect to have $400 interest in- require you to account for, or prove, your busi-
ployer must withhold tax on the basis of the come during the year. Using Figure 1-A, you ness expenses to your employer or does not re-
withholding rate (marital status) and maximum find that you can’t claim exemption from with- quire you to return your employer's payments
withholding specified in that letter. holding because your unearned income will be that are more than your proven expenses.
If you later believe that you are entitled to more than $350 and your total income will be Reimbursements or other expense allowan-
claim exemption from withholding or otherwise more than $1,100. ces paid under an accountable plan that are
adjust your withholding, you can complete a You may have to file a tax return, even more than your proven expenses are treated as
new Form W-4 and a written statement to sup- if you are exempt from withholding. paid under a nonaccountable plan if you don’t
port the claims made on the Form W-4 and ! See Pub. 501 to see whether you must return the excess payments within a reasonable
CAUTION
send them directly to the IRS address shown on file a return. period of time.
the lock-in letter. Your employer must continue
to figure your withholding on the basis previ- Age 65 or older or blind. If you are 65 Accountable plan. To be an accountable
ously determined by the IRS until the IRS advi- or older or blind, use Worksheet 1-1 or plan, your employer's reimbursement or allow-
ses your employer otherwise. Worksheet 1-2 to help you decide ance arrangement must include all three of the
At any time, either before or after the lock-in whether you can claim exemption from with- following rules.
letter becomes effective, you may give your em- holding. Don’t use either worksheet if you will • Your expenses must have a business con-
ployer a new Form W-4 that does not claim itemize deductions or claim tax credits on your nection. That is, you must have paid or in-
complete exemption from withholding and re- 2020 return. Instead, see Itemizing deductions curred deductible expenses while perform-
sults in more income tax withheld than specified or claiming credits next. ing services as an employee of your
in the lock-in letter. Your employer must then employer.
withhold tax based on this new Form W-4. • You must adequately account to your em-
Additional information is available at Itemizing deductions or claiming credits. If ployer for these expenses within a reason-
able period of time.
you had no tax liability for 2019, and you will:
IRS.gov. Enter ``withholding compliance • Itemize deductions, or • You must return any excess reimburse-
questions'' in the search box. • Claim a tax credit, ment or allowance within a reasonable pe-
riod of time.
Exemption From Withholding use Worksheet 2-1 (also, see chapter 2) to fig- An excess reimbursement or allowance is
ure your 2020 expected tax liability. You can
If you claim exemption from withholding, your claim exemption from withholding only if your any amount you are paid that is more than the
total expected tax liability (line 11c of the work-
business-related expenses that you adequately
employer won’t withhold federal income tax sheet) is zero. accounted for to your employer.
from your wages. The exemption applies only to The definition of reasonable period of time
income tax, not to social security or Medicare Claiming exemption from withholding. To
tax. claim exemption, you must give your employer depends on the facts and circumstances of
your situation. However, regardless of those
You can claim exemption from withholding a Form W-4. Write “Exempt” on the form in the facts and circumstances, actions that take
for 2020 only if both of the following situations space below Step 4(c) and complete Steps place within the times specified in the following
apply. 1(a), 1(b), and 5. Don’t complete any other list will be treated as taking place within a rea-
• For 2019, you had a right to a refund of all steps. sonable period of time.
federal income tax withheld because you If you claim exemption, but later your situa- • You receive an advance within 30 days of
had no tax liability. tion changes so that you will have to pay in- the time you have an expense.
• For 2020, you expect a refund of all federal come tax after all, you must file a new Form • You adequately account for your expenses
income tax withheld because you expect to W-4 within 10 days after the change. If you within 60 days after they were paid or in-
have no tax liability. claim exemption in 2020 but you expect to owe curred.
income tax for 2021, you must file a new Form
W-4 by December 1, 2020.

Chapter 1 Tax Withholding for 2020 Page 7