Legal Question in Tax Law in Illinois

If you want to claim exempt on your W-4, BOTH of the following need to be true:

(1) For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability and (2) For the current year, you expect a refund of all federal income tax withheld because you expect to have no tax liability.

If one or both of these are false, then you will not be eligible to claim exempt on your W-4.

The foregoing notwithstanding, sometimes claiming exempt may not be an option if any of the following is true: (1) If your income is $950 or more and at least $300 of that is from unearned income (such as interest,dividend or capital gain income), then you cannot claim exempt from taxes. (2) If you plan to claim dependents on your tax return, then you cannot claim exempt from taxes.(3) If you will be itemizing your deductions on your tax return for the year, then you cannot claim exempt from taxes.

(If you are Age 65+ or blind, you must use IRS Worksheet 1-3 or 1-4 to determine if you can claim exempt.)

Be careful: If you claim exempt and you are not exempt, you may be liable for a $500 penalty if you have no reasonable basis for claiming exempt and you end up owing taxes (even if you pay the tax with the return).