If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. The exemption applies only to income tax, not to social security or Medicare tax.
You can claim exemption from withholding for 2011 only if both the following situations apply.
- For 2010 you had a right to a refund of all federal income tax withheld because you had no tax liability.
- For 2011 you expect a refund of all federal income tax withheld because you expect to have no tax liability.
You cannot claim exemption from withholding if (a) your income exceeds $950 and includes more than $300 of unearned income (for example, interest and dividends) and (b) another person can claim you as a dependent on their tax return.