What does it mean to claim exemption from withholdings on the Federal form W-4 and Maryland form MW-507?
By choosing “Exempt” on the W-4 or MW-507 means that you (1) did not have to pay any taxes last year (ALL withholdings were refunded), and (2) you do not expect any tax liability for this year. This is different from simply getting a refund of some withholdings last year—getting a refund of withholdings made in excess of your tax liability does not make you exempt from taxes. If you claim exempt on either the W-4 or MW-507, no taxes will be withheld and you will be liable for any penalties assessed for underpayment of tax withholdings. These forms must be completed at the beginning of each year you claim to be exempt, they do not carry forward from year to year. Contact the IRS or the State Comptrollers Office for further details regarding this issue.
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