Educating Employees on Filing
Correct W-4 Forms
Key Messages: REQUIREMENT FOR SENDING FORMS W-4 TO THE IRS ELIMINATED
In the past, employers had to routinely send the IRS any Form W-4,
The Internal Revenue Service Employee's Withholding Allowance Certificate, claiming more than 10
strives to collect the proper amount allowances or claiming complete exemption from withholding if $200 or
of revenues at the least cost to the more in weekly wages was expected. This requirement was eliminated in
public, and in a manner that 2005. However, Forms W-4 are still subject to review. Employers may be
warrants the highest degree of directed (in a written notice or in future published guidance) to send certain
public confidence in our integrity, Forms W-4 to the IRS. The IRS will be reviewing employee withholding
efficiency, and fairness.
compliance and you may be required to withhold income tax at a higher rate
if notified to do so by the IRS. The IRS will also use information reported on
A correctly filed Form W-4 should
result in just enough tax withheld to
Forms W-2, Wage and Tax Statement, to more effectively identify
cover the tax liability when a tax employees with withholding compliance problems. In some cases, where a
return is filed. 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
There are people who encourage letter") to the employer specifying the maximum number of withholding
others to deliberately violate our allowances permitted for a specific employee. The employer must disregard
nation’s tax laws. Many offer any new Form W-4 (unless they are claiming a number of withholding
advice that is false and allowances less than the maximum number specified in the lock-in letter)
misleading, hoping to encourage until notified by the IRS.
others to join them. Generally,
their advice is not free. Federal WHEN CAN AN EMPLOYEE CLAIM EXEMPT?
courts have consistently ruled Taxpayers may only claim exempt status when he/she had no income tax
against these people. liability last year and expects none this year. No tax liability, means they
paid no tax at all. It does not mean that they paid some tax and received a
Taxpayers who purchase this refund of their remaining withholding. A Form W-4 claiming exemption from
kind of information often wind up withholding is valid for only one calendar year. To continue to be exempt
paying more in taxes, interest,
from withholding in the next year, an employee must give you a new Form
and penalties than they would
W-4 by February 15 of that year. If the employee does not give you a new
have paid by simply filing correct
tax returns. Some may subject
Form W-4, withhold tax as if the employee is single with zero withholding
themselves to criminal penalties, allowances or withhold based on the last valid Form W-4 you have for the
including fines and possible employee.
imprisonment.
WHY SHOULD EMPLOYERS CARE ABOUT WHAT THEIR
EMPLOYEES PUT ON THEIR FORM W-4?
References: If an employee has a balance due on a tax return the Internal Revenue
Publication 919, How Do Service may issue a Notice of Levy on Wages. Employers must
I Adjust My Tax respond to the levy, maintain bookkeeping on the attached wages and
Withholding are required send it to the Internal Revenue Service.
Publication 505, Tax
Withholding and Furthermore, they may lose a good employee when collection actions
Estimated Tax are taken if the employee should choose to quit to avoid paying what
Publication 15, Circular they owe.
E, Employers Tax Guide
www.irs.gov, Keyword You should inform your employees of the importance of submitting an
“withholding calculator” 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.