My son is a full-time student. We still claim him as a dependent. In 2015 he earned ~$2000 as a self-employed contractor, so no tax was withheld but he owed some self-employment tax.
In 2016 he will be working as an employee and expects to earn about $5200.
Can he claim exempt status on his W-4? The requirements are:
Last year I had a right to a refund of all federal income tax withheld because I had no tax liability, and
This year I expect a refund of all federal income tax withheld because I expect to have no tax liability. If you meet both conditions, write “Exempt” here .
Last year, he technically didn't have any federal income tax withheld. And his income was well under the limit for needing to file a return if it had been employee income. And this year he will be under the limit for an unmarried person who is someone else's dependent to need to file.
So I suspect that he can and should fill in Exempt there, but since he did owe federal tax last year, due to the self-employment tax I'm not 100% sure.