How to file exempt on taxes
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Consult the IRS guidelines to determine if you are truly tax exempt. According to the University of Louisville, you must meet the following conditions before you can be considered exempt from federal income taxes: you either owed no federal income tax last year or you made less than the standard deduction and received all of the income tax you paid back, and you know that you will not be making more than the federal deduction in the coming year. The standard deduction amount can be found on the IRS website. You also cannot receive any more than $300 in interest or dividend income for the year to be considered tax exempt. If you meet this criteria, then you can claim exempt status.
Fill in your W-4 with your employer indicating your exempt
status by checking the exempt box. Be certain to have this W-4 submitted each year by the February 15 deadline. If you are claiming exempt for the year, then you must submit a new W-4 each year.
Monitor your income through the year and if it looks like you will be making more income than the standard deduction, then you no longer qualify for exempt status and must file a new W-4.
File a standard IRS federal income tax form 1040-EZ indicating your exempt status. You will need to file a copy of your W-4 along with your return just as you would if you were not filing exempt.
Re-evaluate your status for the next year to determine if you would qualify for tax exempt status again and re-file a new W-4 if you do not.Source: ehow.com