Essentially all employees working in the U.S must complete Form W-4, which employers use to calculate federal income tax withholding from employee paychecks. This article describes Form W-4 and what employers must do if there are issues with this form.
What Is IRS Form W-4?
Every employee working in the U.S. must fill out IRS Form W-4 when they are hired at a new job. This form, called the Employee's Withholding Certificate, includes information for the employer to use when calculating the employee's federal income tax withholding. It also includes worksheets to help employees figure out their withholding.
You may not help an employee with a W-4 form, but you can direct the employee to the IRS withholding estimator that walks them through the process.
When Must a W-4 Be Completed?
An employee must complete the form at hire before their employer gives them their first paycheck. You (as the employer) must start using the new W-4 by the start of the first payroll period ending on or after the 30th day from the date the employer receives it.
Here's an example: Josie gives you a new W-4 on November 10; she is paid on the 15th and 30th of each month. You must set up her employee record and pay her using the W-4 form no later than the December 15 payroll because the 30th day payroll is too late to meet the implementation requirement.
The W-4 form is one form in the process of hiring new employees. Use this checklist for new hires to make sure you aren't missing anything.
How Does an Employee Update Their W-4?
Employees may change the withholding amounts on a W-4 form at any time during the year but changes made later in the year will have less impact on taxes for that year. Employees usually submit a new W-4 for a change in personal circumstances, like marriage, divorce, or a change in income. If the change reduces the employee's withholding amount, they must submit it within 10 days after the change occurs.There is no time limit on how long a W-4 stays in effect; it remains in effect until the employee changes it.
The most current W-4 must be signed by the employee and the employer must keep it in the employee's payroll folder to verify the amount of federal income tax withholding.
If an employee wants to make an adjustment to a W-4 for a bonus or other one-time pay change, you should give them enough notice so that they can plan for the withholding change to be in effect with the same payroll as the bonus. For example, if Joe gets a $3,000 bonus in his December 15 paycheck, he could complete a new W-4 lowering the withholding just for that pay. Then, he could submit a second W-4 for the December 30 paycheck to bring the withholding back to the normal amount.
Can I Accept W-4 Forms by Phone or Email?
Employers cannot accept information from an employee about a new or changed W-4 form by phone or email because the employer has no way of knowing if the person is authorized for this action. The only way a change can be made is by completing and signing the W-4 form itself in person or by mail.
Many U.S. states use their own variation of the W-4 form to record state withholding amounts. And some states do not allow electronic capture of W-4 information. Check with your state's taxing authority to see if they allow you to use the federal W-4 form.
What If You Have Issues With a W-4?
A W-4 form may be invalid for several reasons including that it is lacking the required information, lacking a signature, or if the form has been altered. If you think a W-4 is not valid, you must continue to withhold based on the previous W-4. If the invalid W-4 form is the first one, withhold as if the person is single with zero allowances.
Recent Changes to the W-4 Form
Effective January 1, 2020, the W-4 form was changed to comply with recent tax law changes. Some of the major changes include:
- The title is now "Employee's Withholding Certificate"
- There are no more withholding allowances because allowances were tied to personal exemptions. These exemptions can't can't be claimed any longer
- "Head of household" is a new marital status for individuals who are unmarried and pay more than half the care of a qualifying person
- There's a new adjustment for households that have multiple workers, to give a more accurate estimate of withholding
- Employers can't withhold a flat percentage or dollar amount. They must use W-4 and IRS tables and withholding methods.
Frequently Asked Questions (FAQs)
What is an employer's responsibility when an employee claims an exemption on their W-4?
An employee may claim that they are exempt from withholding federal income taxes if they have had no tax liability the previous year and none expected for the current year. The employee must submit a W-4 claiming exemption by February 15 of the year. If an employee was previously exempt and doesn't give you a new W-4 by this date, you must withhold as if the person is single with no other adjustments. You may also use a previous W-4 (not claiming exempt status) for the year.
How long must an employer keep employee W-4 forms?
You must keep employee W-4 forms in your records for at least four years to verify that you are withholding federal income taxes correctly. These forms, along with other forms signed by employees, must be available in hard copy format in case of an IRS audit.
How does the multiple jobs calculation affect W-4 calculations?
The current W-4 has a new calculation for situations in which an employee or an employee and spouse have multiple jobs. The employee must check the "multiple income" box at the top of the form. Then you must use the appropriate withholding table on Form W-4 for the employee's marital status to calculate the withholding amount.