Tax Topic #753 |
2008 Tax Year |
Topic 753 - Form W-4
Employee's Withholding Allowance Certificate
When you hire an employee, you must have the employee complete a Form W-4 (PDF), Employee's Withholding Allowance Certificate.
Form W-4 tells you, as an employer, how many withholding allowances to use
when you deduct Federal income tax from the employees' pay. Form W-4 includes
detailed worksheets to help the employee figure his or her correct number
of withholding allowances. Employees may also want to access the withholding
calculator on the IRS website at www.irs.gov/individuals for
help in completing Form W-4. Tell any nonresident alien employees to see the Form 8233 Instructions before completing a Form W-4
If an employee qualifies, Form W-4 is also used by the employee to tell
you not to deduct any Federal income tax from his or her wages. To qualify
for this exempt status, the employee must have had no tax liability for the
previous year and must expect to have no tax liability for the current year.
However, if the employee can be claimed as a dependent on a parent's or another
person's tax return, additional limitations apply. See the instructions for
Form W-4. A Form W-4 claiming exemption from withholding is valid for only
one calendar year. To continue to be exempt from withholding in the next year,
an employee must give you a new Form W-4 claiming exempt status by February
15 of that year. If the employee does not give you a new Form W-4, withhold
tax as if he or she is single, with no withholding allowances. However, if
you have an earlier Form W-4 (not claiming exempt status) for this employee
that is valid, withhold as you did before.
You should inform your employees of the importance of submitting an accurate
Form W-4. An employee may be subject to a $500 penalty if he or she submits,
with no reasonable basis, a Form W-4 that results in less tax being withheld
than is required.
Any unauthorized change or addition to Form W-4 makes it invalid. This
includes taking out any language by which the employee certifies that the
form is correct. A Form W-4 is also invalid if, by the date an employee gives
it to you, he or she indicates in any way that it is false. When you get an
invalid Form W-4, do not use it to determine federal income tax withholding.
Tell the employee that it is invalid and ask for another one. If the employee
does not give you a valid one, withhold taxes as if the employee was single
and claiming no withholding allowances. However, if you have an earlier Form
W-4 for this employee that is valid, withhold as you did before.
If an employee fails to give you a properly completed Form W-4, you must
withhold federal income taxes from his or her wages as if he or she were single
and claiming no withholding allowances. However, if you have an earlier Form
W-4 for this employee that is valid, withhold as you did before.
After the employee completes and signs the Form W-4, you must keep it in
your records. This form serves as verification that you are withholding federal
income tax according to the employee's instructions and needs to be available
for inspection should the IRS ever request it.
Forms W-4 are still subject to review. Employers may be directed (in a
written notice or in future published guidance) to send certain Forms W-4
to the IRS. In the past, employers had to routinely send the IRS any Form
W-4 claiming complete exemption from withholding if $200 or more in weekly
wages was expected or claiming more than 10 allowances. Employers no longer
have to routinely submit these Forms W-4 to the IRS.
The IRS will also use information reported on Forms W-2, Wage and Tax
Statement, to more effectively identify employees with withholding compliance
problems. In some cases, where a serious under-withholding problem is found
to exist for a particular employee, the IRS may issue a notice (commonly referred
to as a "lock-in-letter") to the employer specifying the withholding rate
(marital status) and maximum number of withholding allowances permitted for
a specific employee for purposes of calculating the required withholding.
The IRS will provide the employee with an opportunity to dispute the determination
before the employer adjusts withholding based on the lock-in letter.
The IRS will send a letter to the employee explaining that the IRS will
require the employer to start withholding additional income tax unless the
employee contacts the IRS to explain why the employee should not have withholding
increased. A toll-free number and address for the unit handling this program
will be provided in the letter. As an additional safeguard, the employer will
also receive a notice to provide to the employee.
After the lock-in letter takes effect, the employer must disregard any
Form W-4 that results in less tax withheld, until the IRS notifies the employer
otherwise. However, the employer must honor any Form W-4 that claims a withholding
rate (marital status), withholding allowances, and any additional amount that
results in more income tax withheld than at the withholding rate and withholding
allowances specified in the lock-in letter. Employers who use electronic Form
W-4 systems must make sure the employee can not override the lock-in letter
to decrease withholding via an electronic Form W-4 system.
After the lock-in letter takes effect, if the employee wants to claim complete
exemption from withholding or claim a withholding rate, withholding allowances,
and additional amount that results in less income tax withheld than the lock-in
letter, the employee must contact the IRS. A toll-free number and address
for the unit handling this program will be provided in the lock-in letter.
You should keep blank Forms W–4 for the current year on hand so you
can provide them to your current and new employees. An employee may want to
change the number of withholding allowances or his or her withholding rate
(marital status) on Form W–4 for any number of reasons, such as marriage,
a change in the number of dependents, or a change in the amount of itemized
deductions or tax credits anticipated for the tax year. If you receive 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 the revised Form W–4, assuming there is no lock-in
letter in effect.
An employer can download and print Form W-4 from the IRS website at www.irs.gov.
Taxpayers may also order Forms W-4 by calling 800-TAX-FORM (800-829-3676).
TTY/TDD users may call 800-829-4059 to order Forms W-4. A substitute Form
W-4, developed by the employer, may be used instead of the official Form W-4,
if the employer also provides the tables, instructions, and worksheets contained
in the Form W-4 in effect at that time. Employers may not accept a substitute
form developed by an employee and the employee submitting such form will be
treated as failing to furnish a Form W-4.
For additional information, refer to Publication 15, (Circular
E), Employer's Tax Guide, Publication 505, Tax Withholding and
Estimated Tax, Publication 919, How Do I Adjust My Tax Withholding?,
and the Withholding Compliance Questions & Answers on the IRS website
at www.irs.gov. For the procedures for withholding income taxes on the wages
of nonresident alien employees, refer to Notice
2005-76 and Aliens
Employed in the U.S. on the IRS website at www.irs.gov.
Page Last Reviewed or Updated: December 22, 2008
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