How do you set up an employee to be exempt from withholding any Federal (FIT) and/or State (SIT)taxes?

Enter zero in the SITW and FITW boxes of the default check for the desired employee(s).

You may need to do this for one of several reasons. The IRS allows employees to claim an exemption from withholding in a specific year if both of the following situations apply:

  • In the year prior, the employee had a right to a refund of all federal income tax withheld because they had no tax liability, and
  • In the current year, they expect a refund of all federal income tax withheld because they expect to have no tax liability.

Some types of employees may also be exempt. This includes students, some part-time workers, workers over 65, and blind employees. However, withholding exemptions are only good for one year, and they must be claimed each year by the employee.

Remember that you can only change withholding based on the documentation provided by the employee, so unless they give you the correct forms, you must continue to withhold all relevant federal, state, and local income taxes. To claim exemption from withholding, an employee must complete a new W-4 form by February 15th of each year.

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