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You may claim EXEMPT on your W4 form if you qualify.
You may claim exemption from withholding for 2011, and I certify that you meet both of the following conditions for exemption.
--Last year you had a right to a refund of all federal income tax withheld because I had no tax liability and
--This year you expect a refund of all federal income tax withheld because you expect to have no tax liability.Otherwise – you should claim two allowances.
You may direct your payroll person to put a percentage of your wages into company's 401k plan. Your contribution to the 401k plan will be subject of FICA taxes, but not a subject of income taxes.However - you might need to leave part of your tip income to your employer to cover your tax liability.Let me know if you need any help.
What are allowances?
When you file W4 form - http://www.irs.gov/pub/irs-pdf/fw4.pdf and provide it to your employer - you put a number of allowances on the line 5.The number of allowances is your instruction to the payroll person about income tax withholding.The payroll person use that number and withholding tables to determine the amount of income tax to be withheld.