The IRS requires each employee to have a properly completed W-4 form on file with their employer. Both employees and employers have compliance requirements to understand Form W-4.
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What is the W-4 Form?
The W-4 form, the Employee’s Withholding Certificate, is an IRS document. Employees are required to complete the W-4 to inform employers about the amount of money to withhold from their paychecks for federal taxes.
If too little money is withheld, the employee will typically owe taxes when filing tax returns and may owe a penalty. If too much money is withheld, the employee will typically receive a refund.
Employees should complete a new W-4 when hired and when they experience changes to their personal or financial situation that would necessitate changes to the entries on the form.
Examples of trigger events for filling out a new W-4 Form:
- Getting married
- Having a child
- Taking a second job
A recommended practice is to encourage employees to complete a new W-4 form each year. In the event an employee makes no changes to their W-4, then their current W-4 remains in effect.
The IRS requires that as an employer, once you receive a new W-4 form your business must begin withholding the revised amounts no later than the first payroll period ending on or after the 30th day after the employee provided it to you.
How to Fill Out a W-4 Form
At the bottom of the W-4 form, you’ll see a section labeled “Employers Only.” The employer is responsible for filling out the employer’s name and address, the employee’s first date of employment, and the company’s EIN.
Additional responsibilities as an employer are to:
- Keep the completed and signed form on file for at least 4 years
- Sync the information into your payroll system.
- Calculate the employee and employer portion of federal taxes and send them to the IRS.
Your HR representative can help employees complete their W-4 forms. However, you should not give tax advice or recommend what to claim on the form. Employees who have tax-related questions should be encouraged to contact a licensed tax professional.
As the employer, you can help employees who have general questions about the form. You may also direct employees to the official IRS Tax Withholding Estimator tool. There are multiple languages supported.
Be sure to provide employees with all of the instructions that are included on Form W-4. This includes the calculation tables. The IRS also usually releases a Spanish language Form W-4 if you’d like to provide it to employees.
What is the Employer Responsible for with the W-4 Form?
Employers must provide a W-4 form to each employee. Your business may distribute paper forms or distribute them electronically so long as the process adheres to IRS regulations.
For example, you must keep the W-4 form in your records for at least 4 years. This form verifies that you’re withholding federal income tax according to the employee’s instructions. It must be available for inspection by the IRS either in hardcopy or electronically.
Each employee is responsible for accurately completing their W-4. However, be certain to have new employees complete the form before issuing their first paycheck.
In the case that an employee doesn’t return their W-4 form, withhold tax as if they were single, with no withholding allowances. This may cause the employee to have their taxes calculated incorrectly. At this highest single-filer rate, the employee may receive an unexpectedly low paycheck. That’s why employees should complete the W-4 as soon as possible.
As the employer, enter your name, address, Employer Identification Number (EIN), and the start date of the worker’s employment onto the W-4 form. Keep every employee’s W-4 form for at least 4 years. Start withholding no later than the first payroll period ending on or after the 30th day after the employee provided it to you.
Invalid W-4 Forms
Employers may not accept a substitute W-4 form developed by an employee. In the eyes of the IRS, this is tantamount to failing to furnish a Form W-4. Any unauthorized change or addition to Form W-4 makes it invalid. This includes material defacing of the form or any writing on the form other than the entries requested. A Form W-4 is also invalid if the employee reveals to you that any information on it is false. When you receive an invalid W-4, request that the employee complete another form.
If the IRS determines that an employee is seriously under-withholding, it will require you to increase the withholding amount by issuing a notice called a “lock-in” letter. This letter will specify the maximum number of withholding allowances allowed for the employee. The employee will have the opportunity to dispute the IRS’ determination before you adjust withholding based on the lock-in letter.
The IRS will send a letter to the employee explaining the situation. The IRS will require the business owner to start withholding additional income tax unless the employee contacts the IRS to present the case. After the lock-in letter takes effect, the business must disregard any W-4 that results in less tax withheld, until the IRS notifies you otherwise. Employers utilizing electronic Form W-4 systems must ensure that the employee can’t override the lock-in letter to decrease withholding.
The W-4 plays a pivotal role in determining the amount of money withheld from employees’ paychecks for federal taxes. Understanding the significance and steps to complete the W-4 form ensures compliance with IRS regulations.
Employees should proactively update their W-4 forms in response to significant life events such as marriage, having a child, or taking a second job, and it’s recommended they revisit the form annually.
Employers bear essential responsibilities in the W-4 process, including accurately completing the employer-specific section, maintaining records for at least four years, and ensuring proper integration into the payroll system. Distribution of the W-4 form must adhere to IRS regulations, and employers must withhold taxes based on the information provided by employees promptly. Lock-in letters issued by the IRS in cases of serious under-withholding necessitate employers to adjust withholding according to specified allowances.
As businesses navigate the complexities of tax regulations, collaboration with trusted professionals becomes an integral component in achieving seamless W-4 compliance. Discover why 100,000 small and midsize businesses partner with Asure for payroll and HR services.