W-4s - Employee Withholding

Posted by Keith Huggett on Thu, Aug 8, 2013 @ 10:08 AM

4 Things You Should Know

W-4Author: Keith Huggett

You know that when you have a new hire that you need to have that person fill out a Form W-4 for tax purposes.  This form tells you the person's marital status, number of withholding allowances, and any additional amount to use when you deduct federal income tax from the employee's pay.

As an employee, Form W-4 includes worksheets to help you figure out the correct number of allowances or there is a withholding calculator available on the IRS website for help in completing the form correctly.

  • Exemption - Some employees may qualify for exemption from withholding. Form W-4 is also used for this purpose. To qualify for exemtion an employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year. If the employee can be claimed as a dependent on a parent's or another person's tax return, additional limitations may apply. This exemption is valid only for one calendar year. New W-4s need to be submitted each year, before February 15th.
  • Invalid W-4 - If an unauthorized change is made to a W-4, it invalidated the form. Any mark made on the form other than the entries requested will invalidate the W-4. If there should be any mark on the W-4 other than the requested entries, ask your employee for another one. If the employee does not give you a valid one, withold taxes as if the employee is single and claiming no withholding allowances. However, if you have an earlier Form W-4 from this employee that is valid, withhold as you did before.
  • Keeping Records - You must keep copies of W-4s for at least 4 years. A W-4 serves as verification that you are withholding federal income tax according to the employee's instructions and you have copies available should the IRS need to see it.
  • IRS Notices - Should there be a compliance issue, the IRS will send out a notice. Both the employee and the employer will receive a notification that there is a problem. As the employer, you will be required to withhold additional income tax until the employee can explain to the IRS why additional tax should not be withheld. These notices are often referred to as "Lock-in Letters." After the lock-in letter takes effect, any request by the employee to change his withholdings that results in less income withheld than the lock-in letter, the employee must be referred back to the IRS.

W-4s can be changed as needed, as evidenced by the lock-in letters.  They may also be changed in the case of marriage, the birth of children, or in case the employee wishes to have additional withholdings deducted from his pay.  If you received a revised Form W-4 from an employee, you must put it into effect no later than the start of the first payroll period ending on or after the 30th day from the date you received it.

Should you have any questions on W-4s, withholding, new-hire's or any other tax topic our specialists at the Tax Office, Inc. are here to provide you with the answers. You can contact us, or ask us a question on our Facebook page.

Topics: Keith Huggett, W-4, IRS forms