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So, we had a new employee start working for us about a week ago and he filled out his W-4 forms and NC-4 forms and claimed 8 exemptions and wrote the word exempt on his forms basically claiming he would have no tax liability and therefore I should deduct no FICA or state taxes from his checks. I double checked with him to make sure that was what he wanted and he assured me that he did. I don't want to overstep my boundaries and ask any more about his personal situation but it is so unusual and it really took my accountant by surprise too. So, my question is what would cause a person to be exempt from all tax liability? Does that automatically mean that he has 8 dependents or could the 8 exemptions be something else?
I am really new to keeping up with payroll responsibilities and I am just trying to prevent any future problems. Have any of you ever heard of a situation like this before where someone was exempt from all witholding taxes like this?
So, we had a new employee start working for us about a week ago and he filled out his W-4 forms and NC-4 forms and claimed 8 exemptions...
This is not uncommon at all. All sorts of reasons may apply.
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and wrote the word exempt on his forms basically claiming he would have no tax liability
and therefore I should deduct no FICA or state taxes from his checks.
The Income taxes are one thing... the FICA is another matter.
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I double checked with him ...and it really took my accountant by surprise too.
What did the Accountant (and I hope that means the company CPA) say?
Specifically about the FICA...
The numbers on the w4 are called allowances. They are neither dependents nor exemptions. It is merely a way to estimate how much tax to withhold, ideally resulting in the employee paying exactly what will be owed on April 15. The allowances do take into consideration the number of dependents and anticipated itemized deductions.
FICA and Medicare taxes are not optional. They must be withheld.
Your employee should be aware that if he is under withheld, there may be penalties involved. I do not think it would be out of line for you to ask why he feels he is "exempt". If it's because he just does not believe in paying taxes, there is a problem.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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I have had people claiming 99. You don't know, and it's none of your business, what their situation is. It could be anything from having 14 kids to anticipating huge losses on investments, or maybe they just prefer to have their money now and pay the IRS at
the end of the year, though they could be penalized for underwitholding. Sometimes,
however, this will be a tax protester that just refuses to pay and is able to get away with it until the IRS finally gets around to attaching their wages for back taxes.
Thanks everybody for your answers. I probably should not have said FICA. What I meant is that he wants no state or federal withholding taken out of his check. My accountant's office said this seemed extremely unusual to them but they had seen it once or twice. So, at this point I am taking out SS and Medicare but not state or federal withholding. I just hope he knows what he is doing....
Claiming more than 10 allowances on the W-4 will get questions (in the form of "love letters") from the IRS. My firm advises against ever trying to claim more than 10. I personally claim 8:
Myself 1
Spouse 1
2 kids 2
Child Tax Credit 4
(2 allowances for each child) --
he can claim all he wants, not your problem if IRS takes a piece of him
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