The Internal Revenue Service requires your employer to take federal income tax out of your paychecks. The Federal Insurance Contributions Act authorizes the IRS to collect Social Security and Medicare taxes; your employer is supposed to withhold these taxes from your paychecks, as well. Most states require state income tax withholding and some local governments require local income tax withholding. Depending on the type of tax and your situation, you can stop your tax withholding.
Qualify to be exempt from federal taxes. Most employees must pay Medicare and Social Security taxes, therefore, exemption from these taxes is rare. If you meet the criteria for exemption from federal income tax as stated on line 7 of your W-4 form, then complete a new form and give it to your employer to stop federal income tax from coming out of your pay. (One situation where exemption is allowed is when you are an employee at a school and also a student.)
Meet your state and, if applicable, local revenue agency’s criteria for exemption from state and local income taxes. For example, in Georgia you can use your state employee withholding allowance certificate to claim exemption if you meet the requirements listed on line 8 of the form, but in New York you must complete a form separate from your state withholding allowance certificate.
Adjust your federal or state income tax withholding conditions so no taxes are withheld from your paychecks. Federal, and some state, withholding procedures for income taxes are based on your wages, allowances and the federal and state tax withholding tables. Generally, the less money you earn, the less taxes you pay, and the more allowances (such as dependents) you claim on your withholding allowance certificate, the less taxes you pay. Review your W-4 and your state withholding allowance form to ensure you are claiming all the allowances you are entitled to, which can result in no income taxes withheld from your pay.
For example, if you earn $370 weekly in 2011 and claim single with five allowances, you pay no federal income tax (see page 38 of the 2011 Circular E in Resources).