If an employee is not required by law to contribute to a specific tax, they are considered exempt.
When you add a tax exemption in CleanCloud Payroll:
We will not debit for that tax.
We will not report it on your filings.
⚠️ Important Reminder: We strongly recommend you consult a CPA or other tax professional before making any tax exemption changes in CleanCloud Payroll to ensure accuracy and compliance.
Employee Tax Exemptions
Special exemptions may apply for:
Social Security
Medicare
Unemployment Insurance
Other employment taxes
Examples of exempt employees may include:
Employees under specific visa types (e.g., J-1 and F-1 visas)
Some business owners or corporate officers
Pastors and certain religious workers
How to Add a Tax Exemption for an Employee
If an employee has completed their W-4 Form incorrectly or missed adding their exemption status, the Account Admin can update it manually.
Follow these steps:
Go to Settings → Users → Manage User Accounts.
Select Manage Gusto Employees.
Click the ⫶ Icon next to the employee you want to update and select Edit Employee.
Click Federal Tax.
In Step 2: Set up withholdings, click the dropdown menu for Federal Filing Status and select Exempt From Withholding.
Click Save & Continue.
Next, update their State Tax information:
Under Filing Status, select Do Not Withhold.
Click Save & Continue again.
Close the tab.
✅ Once the exemption is fully set up:
No wages will be reported for the exempted tax.
We will not file for the exempted tax with the corresponding agency.
📌 Note: If your employee becomes liable for the tax in the future, it is the company’s responsibility to remove the exemption in CleanCloud Payroll.
Reporting Wages for Exempt Employees
When an employee marks their Federal filing status as "Exempt From Withholding" or elects "Do Not Withhold" for state taxes:
CleanCloud Payroll will not withhold the applicable tax from their wages.
However, wages will still be reported in:
Box 1 (Federal wages)
Box 16 (State wages)
Box 17 (State income tax withheld, if applicable) on their year-end W-2.
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