Exempt from withholding typically means you are telling your employer not to withhold federal income tax from your paycheck. This can happen when you had no federal tax liability last year and do not expect to owe any this year. Note that being exempt from federal withholding does not affect Social Security or Medicare taxes, and it does not automatically apply to state or local taxes. If you claim exempt in error, you may owe taxes (and possible penalties) when you file your return. Key points

• Federal withholding exemption on Form W-4: If you qualify, your employer withholds zero federal income tax from your wages.

• Eligibility basics: Generally, you must have had no federal income tax liability last year and expect to owe none in the current year. You must still submit a W-4 to your employer.

• What changes with exemptions: Exemption affects only federal income tax withholding. Other payroll taxes (Social Security and Medicare) continue to apply, and state/local withholding may differ by jurisdiction.

• Risk of incorrect exemption: If you don’t actually qualify, you could face a large tax bill or penalties when filing.

• How to apply: Complete Form W-4 and indicate exempt (usually in the space for line 4C on older versions). Some states have separate forms and rules.

If you’d like, specify your location (country/state) and whether you’re trying to understand federal withholding in the U.S. or another jurisdiction, and I can tailor the explanation to that context, including steps to verify eligibility and what forms to file.