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FAQs About Employee Tax Exemptions in Zenefits Payroll

How can I remove a tax exemption?

To remove an existing exemption in Zenefits:

  • Click on the Directory app.
  • Click on the employee's name.
  • From the left-hand menu, select Tax Info
  • Scroll down to the Exemptions table and click on the blue Edit link to be given the option to Remove.
    • Both currently active exemptions and those with a future effective date can be removed. Changes will apply going forward, and begin in the next payroll.
    • Exemptions are grouped by effective date. Individual exemptions in each group cannot be edited or removed individually. If only one exemption should be removed, the others will have to be re-added.
  • Once you've completed removing the exemption in Zenefits, contact Customer Care. They will confirm if the exemption has been removed.

Please contact us to retroactively remove an exemption. Depending on the type of exemption and when it is removed, Zenefits Payroll may need to edit the  W-2, run a correction, or file an amendment for the company's taxes.

How do I mark employees as exempt in Zenefits Payroll?

To mark an employee as exempt from one or more taxes in Zenefits Payroll: 

  • Click on the Directory app, then click on the employee's name. 
  • On their Tax Info page, scroll down to the Exemptions table, and click Add to set up the employee's exemptions.
  • Choose an Effective Date for the exemptions.
  • You'll need to mark Exempt for all taxes the employee will be exempted for.

Learn more about the rules for setting tax exemptions for employees in Zenefits Payroll.

Make sure to check with your tax advisor prior to changing the tax status of your employees. Penalties for improperly paid taxes may fall on your company and/or your employees.

What happens when I mark an employee as exempt in Zenefits Payroll?

When an employee is marked in Zenefits Payroll as exempt from a particular tax, Zenefits Payroll will exclude that employee's wages when calculating the company's payments for that tax and when reporting amounts for that tax on the company's returns. If there's an employee-paid portion of the tax (e.g., for Social Security), the employee will not see the tax withheld from their paycheck or on their W-2.

For example, let's say a non-US resident employee with a J-1 work visa is marked as exempt from Social Security taxes in Zenefits Payroll:

  • Zenefits Payroll will not withhold any amounts from their paycheck for Social Security, but will withhold as normal for Federal Income and any applicable state taxes.
  • The company's tax payments won't include any amounts for both the employee and employer-paid portions of Social Security for that employee, but will include amounts for Federal Income and any state taxes for that employee as normal.
  • Zenefits Payroll will not include the employee's wages when reporting Social Security amounts withheld from their coworkers on the company's Form 941 or 944.
  • The employee's W-2 will not include any amounts for Social Security, but will include amounts for other taxes as normal.

Note: Zenefits supports marking employees as exempt from only withholding for Federal Income Tax. Zenefits does not support being exempt from being subject to Federal Income Tax.

What is the difference between exempt from withholding and exempt from taxes?

There are two ways to claim exempt:

  • An employee who claims exemption from withholding is claiming they should not have withholding for that tax, but they may still have to pay the tax at the end of the year. Their employer should still report their wages.

Zenefits Payroll supports marking employees as exempt from withholding only, but only for Federal Income Tax.

  • An employee who claims exemption from taxes for a particular tax is claiming they should not have withholding because they will not have to pay that tax at all. Their employer should not report their wages. Aside from Federal Income Tax as notated above, this is the only type of exemption that Zenefits Payroll supports.

Learn more about what happens when an employee is marked as exempt in Zenefits Payroll.

When should exemptions be applied?

The exemptions tool is a powerful feature because it allows us to, on the surface, not calculate taxes for anyone in Zenefits. Below is a list of tax items that can now be supported with the exemptions feature as well as a brief description and what to specifically mark the employee exempt from.

Corporate Officers (May be exempt from state unemployment tax in WA, OR, and MN.)

  • Mark employee as exempt from SUTAand SUTA  Surcharge(s).

Texas Non-Profits (If a nonprofit has 4 or fewer employees, then the company is not subject to SUTA)  

  • Mark all employees exempt from SUTA. 

Oregon Non-Profits (Non-profits in Oregon are not subject to TriMet tax.) 

  • Mark all employees exempt from TriMet. 

Oregon LLC Members (Owners of LLCs in Oregon can be exempt from SUTA.) 

  • Mark employee exempt from SUTAand SUTA Surcharge(s).

Michigan Renaissance Zones (If you work and live in specific areas of Michigan, you are exempt from Michigan state taxes. Find more information here.)

  • Mark the employee s exempt from the applicable WITH and SUTA taxes. 

Visa employee (An employee's Visa status affects subject taxation.) 

  • Mark all employees exempt from the applicable taxes. This is based on their Visa status. 

Children of Owners (Dependent on their age, a child may be exempt from certain federal and state taxes if they work at the same company that their parents owns.) 

  • Mark child (employee) exempt from the applicable taxes. 

Religious Exemptions (Amish and Mennonite employees are exempt from FICA and MEDI.)

  • Mark any Amish or Mennonite employee exempt from both FICA and MEDI.

Statutory Employees (Employees that normally would classify as a contractor, but state or federal law says that they are an employee. [Note: We currently don't support marking the Statutory Box on the W-2.]) 

  • Mark the employee exempt from FIT. 

Interns (Based on the intern's age and state, an intern may or may not be subject to state/federal taxes.) 

  • Mark the intern exempt from the applicable taxes.

Please note that this list is only meant to serve as an example, and does not replace the advice of an employment attorney.

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