Can I File Exempt & Still Get a Tax Refund?

Last tax season, more than 75% of taxpayers received a tax refund, and the average refund was close to $3,000. You can get started now with TurboTax and get closer to your tax refund, and if you have questions on your taxes, you can connect live via one-way video to a TurboTax Live tax expert with an average of 12 years of experience to get your tax questions answered from the comfort of your couch.

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As you may already know, the IRS issues tax refunds when you pay more tax during the year than you actually owe. When you file exempt with your employer for federal tax withholding, you do not make any tax payments during the year. Without paying tax, you do not qualify for a tax refund unless you qualify to claim a refundable tax credit, like the Earned Income Tax Credit.

The tax law requires your employer to withhold federal income tax from each paycheck you receive and send it to the IRS on a quarterly basis. At tax time, your employer provides you with a W-2 Form that reports the total amount of taxes withheld during the year. When you sit down to do your taxes, if the taxes you owe are less than the total amount withheld, the IRS will send you a tax refund for the difference.

Generally, if you are self-employed and expect to owe $1,000 or more, you are required to make income tax payments every three months throughout the year. If you have questions, we have TurboTax Live Self-Employed tax experts, available in English and Spanish, to help you with your personal and business income and expenses. You can even just hand over your taxes to a TurboTax Live tax expert who can do them from start to finish with TurboTax Live Full Service.

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Filing exempt from withholding

When you start a job, your employer will ask you to fill out IRS Form W-4. The W-4 helps you estimate the amount that should be withheld from each paycheck based on the tax information you provide. To claim an exemption from withholding, you must meet certain criteria. If you had even $1 of tax liability in the prior year or anticipate earning income in excess of the sum of your standard deduction ($12,550 single, $18,800 head of household, $25,100 married filing jointly), you cannot be exempt from federal tax withholding in the current year.

For example, if you file as single on your 2021 taxes, you must not anticipate earning income in excess of the standard deduction of $12,550. If you still claim exempt from withholding and earn income in excess of this amount, you will probably owe some taxes unless you qualify for refundable tax credits like the Earned Income Tax Credit or the Child Tax Credit.

Update your W-4

If you are unable to claim exempt from withholding, you can still reduce the amount that is withheld from your paycheck by updating your W-4 and changing your withholding. There is a redesigned IRS W-4 now called the W-4 Employee’s Withholding Certificate instead of the W-4 Withholding Allowance Certificate that has been updated to reflect changes under tax reform.

The IRS W-4 was redesigned to align with changes under tax reform and to help taxpayers figure out their correct withholding after tax law changes. One of the biggest changes on the W-4 form was the elimination of personal allowances since allowances were tied to the dependent and personal exemption which was eliminated. The redesigned W-4 will take into account whether you can claim the Child Tax Credit and whether you can claim tax deductions other than the standard deduction, both of which can reduce your withholding.

Refundable tax credits

A refundable tax credit means that even if you have zero tax liability before claiming the tax credit, you may still get a tax refund. Refundable tax credits not only reduce the federal taxes you owe but also could result in a tax refund even if the tax credit is more than the tax you owe. For example, the American Opportunity Tax Credit that covers certain higher education expenses is 40 percent refundable and the Earned Income Tax Credit is fully refundable so if you are eligible for these tax credits you may see a tax refund even if you paid no income tax for the year.

Don’t worry about figuring any of this out. TurboTax will ask you simple questions and give you the tax deductions and credits you are eligible for based on your answers. Our TurboTax Live tax experts are available in English and Spanish, year-round and can review, sign, and file your tax return, or you can just hand your taxes over to them. All from the comfort of your home.


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