Every year, millions of Americans fill out their W-4 forms and send them off to their employers. For the most part, people don’t give it a second thought. But what happens if you make a mistake on your W-4? What if you accidentally claim exempt all year?
It’s actually not as uncommon as you might think. According to the IRS, about 3 million taxpayers mistakenly claim exempt from withholding each year. And while it might not seem like a big deal, claiming exempt when you’re not actually eligible can have some pretty serious consequences.
For one thing, claiming exempt means that your employer won’t withhold any money from your paycheck for taxes. That might sound good in the short-term, but it means that you’ll owe the IRS a lot of money come tax time. In fact, if you don’t pay your taxes throughout the year, you could be subject to penalties and interest charges that can add up quickly.
Additionally, claiming exempt can also cause problems if you’re expecting a refund. If you’ve had too much money withheld from your paycheck, you’re entitled to a refund when you file your taxes. But if you’ve claimed exempt all year, you won’t have had any money withheld, which means you won’t be getting a refund either.
Finally, claiming exempt can also impact your eligibility for certain tax credits and deductions. If you don’t have enough taxes withheld during the year, you might not meet the minimum threshold for claims like the Earned Income Tax Credit or the Child Tax Credit. And if you itemize your deductions on your tax return, claiming exempt could mean that you won’t have enough taxes withheld to reach the standard deduction amount.
As you can see, there can be some pretty serious consequences to accidentally claiming exempt all year. So if you believe that you might have made this mistake on your W-4, it’s important to take action to fix it as soon as possible. Otherwise, you could end up owing a lot of money to the IRS come tax time—and no one wants that!