Employees may claim exempt from federal income tax withholding if they did not owe any tax in which years?

Employees may claim exemption from federal income tax withholding if they did not owe any federal income tax in the previous year and expect not to owe any in the current year. This eligibility is specifically tied to a two-year period: the immediate prior year and the current year, allowing the employee to establish a history of not having a tax liability.

This understanding is rooted in IRS guidelines which state that to qualify for exempt status, an employee must demonstrate a lack of tax liability in both the prior year and expectation for the current year. The rationale behind this criterion is to ensure that only those who genuinely have a lower likelihood of owing taxes receive the exemption from withholding, thereby maintaining the integrity of the withholding system.

Other options do not accurately reflect the criteria set forth by the IRS for claiming exemption from withholding. For instance, claiming exempt for the current and next year would not adhere to the retrospective approach required. Similarly, options mentioning just the last two years or any two consecutive years fail to clarify that one of those years needs to be the most recent year prior to filing for exemption.