The purpose of the W-4 is to set or adjust how much federal income tax is withheld from your paycheck. Some tax professionals who prepare returns for healthcare travelers have witnessed an increase in the number of mobile providers claiming "exempt" on their forms. In this, the second installment of our three-part series addressing the "Employee's Withholding Allowance Certificate," we explore whether making such a claim is really advantageous.

What is "exempt?"

In addition to your tax filing status and the exemption allowances covered last month, you may claim exemption from withholding by writing "Exempt" on line 7 of your W-4. No tax would be withheld from your check, but it is allowed only if you had no tax liability last year and will have none in the current year.

While almost all mobile nurses, therapists, and technologists receive a refund on their federal tax returns, very few have "no tax liability." A refund is the calculated overage of tax withheld by your employer in excess of your calculated tax liability for a given tax year. Misunderstandings seem to stem from receiving "tax-exempt" benefits. Under so-called "Tax Advantaged" programs, a portion—not the entirety—of your income for housing and/or meals is tax-free.

The instruction for line 7 of the W-4 may also be a source of confusion. You can claim exempt from withholding only if you received a refund of all tax withheld last year because you had no tax liability for the year. Even if you enjoyed tax-free benefits as a traveler, this would be an unlikely scenario.

A rude awakening

Unfortunately, if you were convinced to erroneously go exempt on your W-4, you won't discover your mistake until you file your tax return. To avoid owing your entire tax liability—all at once—be sure to verify that you meet criteria and, if necessary, consult with tax professionals.

The preceding discussion is general in nature, and should not be considered advice for any individual tax situation. You should consult with your personal tax planning professional for specific guidance relating to your unique circumstances.