The W4 form, officially known as the Employee’s Withholding Certificate, is a crucial document in the employment process. This form is completed by employees and provided to their employers. It dictates the amount of federal income tax that will be withheld from each paycheck. Understanding the W4 form is essential for both employers and employees to ensure accurate tax withholding and avoid potential penalties.
When you hire a new employee, it’s imperative that they complete a W4 form. This document provides you with the necessary information to calculate and deduct the correct amount of federal income tax from their earnings. The information includes the employee’s filing status, multiple jobs adjustments, claimed credits, other income, deductions, and any additional amount they wish to have withheld.
If an employee fails to provide a properly completed W4 form, you are legally obligated to withhold federal income taxes as if they are single or married filing separately with no other entries on Step 2, 3, or 4 of the form. This means the standard deduction for a single filer, without any other adjustments, will be used to determine the withholding amount.
Key Aspects of the W4 Form
Revised W4 Forms
If an employee submits a revised W4 form, you must implement the changes no later than the start of the first payroll period ending on or after the 30th day from the date you received the revised form. You are generally required to honor the employee’s request unless the form is deemed invalid or a “lock-in letter” from the IRS is in effect (more on these later).
Accessing the W4 Form
You can easily download and print the W4 form from the IRS website. You can also order multiple copies online or by calling the IRS. Employers can also create a substitute W4 form, provided it includes all the same information, tables, instructions, and worksheets as the official IRS version. The substitute form must adhere to all current IRS rules for substitute forms, including identical language to the official version. It’s important to note that you cannot accept a substitute form developed by an employee; doing so is treated as if the employee failed to furnish a W4.
Resources for Employees
The W4 form includes detailed worksheets designed to help employees calculate their correct adjustments. Employees can also use the IRS Tax Withholding Estimator tool for guidance in completing the form accurately. Nonresident aliens have specific instructions to follow when completing a W4 form. They should refer to Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens, and the Instructions for Form 8233 before completing the W4. They should also review Chapter 8 of Publication 519, U.S. Tax Guide for Aliens, for important withholding information.
Electronic W4 Systems
Employers can establish electronic systems for employees to submit their W4 forms. Regulations regarding electronic W4 systems can be found in Employment Tax Regulations section 31.3402(f)(5)-1(c) and Publication 15-A, Employer’s Supplemental Tax Guide.
Exemption from Withholding
Employees can use the W4 form to claim exemption from federal income tax withholding. To qualify, they must have had no tax liability for the previous year and expect to have no tax liability for the current year. A W4 claiming exemption is only valid for the calendar year in which it’s submitted. To maintain exempt status in the following year, a new W4 claiming exemption must be submitted by February 15th of that year. If the employee doesn’t provide a new W4 by this date, withhold tax as if they are single or married filing separately with no other entries on Step 2, 3, or 4. If a new W4 claiming exemption is provided after February 15th, you can apply it to future wages but should not refund any taxes withheld while the exempt status was not in effect.
Invalid W4 Forms
Any unauthorized change or addition to the W4 form renders it invalid. This includes removing any language certifying the form’s accuracy, materially defacing the form, or adding any writing other than the requested entries. A W4 is also invalid if the employee indicates in any way that the information provided is false. If you receive an invalid W4, do not use it to determine federal income tax withholding. Inform the employee that the form is invalid and request a new one. If they fail to provide a valid form, withhold taxes as if they are single or married filing separately with no other entries on Step 2, 3, or 4. However, if you have a previously valid W4 form for that employee, continue withholding as before.
Recordkeeping Requirements
After an employee completes and signs the W4 form, you are required to keep it in your records for at least four years. This form serves as verification that you are withholding federal income tax according to the employee’s instructions and must be available for inspection by the IRS upon request. The W4 remains subject to review, and you may be directed (in a written notice or future published guidance) to send specific W4 forms to the IRS. If using an electronic W4 system, you must be able to provide a hard copy of the electronic form.
Lock-in Letters
The IRS uses information reported on Forms W-2 to identify employees with potential withholding compliance issues. In cases where a significant under-withholding problem is detected, the IRS may issue a “lock-in letter” specifying the filing status, multiple job adjustments, and maximum amount of credits or deductions permitted for that employee. The employee will have the opportunity to dispute this determination before you are required to adjust withholding based on the lock-in letter.
The IRS will notify the employee that they will be required to increase withholding unless the employee contacts the IRS to explain why the increase is unwarranted. The letter will include a toll-free number and address for the relevant IRS unit. As an additional measure, you will also receive a notice to provide to the employee.
Once a lock-in letter takes effect, you must disregard any W4 form that would result in less tax being withheld, unless the IRS notifies you otherwise. However, you MUST honor any W4 that results in more income tax being withheld than specified in the lock-in letter. Employers using electronic W4 systems must ensure that employees cannot override the lock-in letter to decrease withholding electronically. Lock-in letter provisions also apply to employees who are rehired within 12 months of the date of the notice.
If an employee subject to a lock-in letter wants to claim complete exemption from withholding or claim a filing status, multiple job adjustments, or an amount of credits or deductions that results in less income tax withheld than the lock-in letter allows, they must contact the IRS directly.
The Importance of Accuracy
It is vital to inform employees about the importance of submitting an accurate W4 form. An employee may be subject to a $500 penalty if they submit, without a reasonable basis, a W4 that results in less tax being withheld than required.
Understanding the W4 form is crucial for employers to accurately withhold federal income taxes and for employees to avoid potential tax issues. By following the guidelines and regulations outlined by the IRS, both parties can ensure compliance and maintain a smooth tax process.
