No withholding is required from an employee if the employee anticipates that he will incur no federal income tax liability for the current taxable year and he incurred no such liability during the preceding taxable year. The exemption must be claimed on line 7 of Form W-4 (Employee's Withholding Allowance Certificate) and must be renewed annually.
An employee who expects to be claimed as a dependent on another person's income tax return and / or expects to have any unearned income, such as interest on savings, and whose wages plus the unearned income are expected to exceed $600 for 2007, cannot claim exemption from withholding.
Student status does not automatically exempt an employee from federal income tax withholding.
