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  • tara berks
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    Tax Topic 753

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    Topic 753 – Form W-4 – Employee’s Withholding Allowance Certificate
    General Information

    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 the employer, the marital status, the number of withholding allowances, and any additional amount to use when you deduct federal income tax from the employee’s pay. 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.

    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 due to 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. You must honor the request unless the situations described below in the sections Invalid Form W-4 and Lock-in Letters apply.

    You can download and print a Form W-4 from IRS.gov. To order multiple Forms W-4, refer to Online Ordering for Information Returns and Employer Returns. You may also order Forms W-4 by calling 800-TAX-FORM (800-829-3676) or 800-829-4059 for TTY/TDD users (M-F, 7 a.m. – 7 p.m. local time; Alaska & Hawaii follow Pacific time). You may also use a substitute Form W-4 you developed instead of the official Form W-4 if you also provide the tables, instructions, and worksheets contained in the Form W-4 in effect at that time. The substitute Form W-4 must contain language that’s identical to the official Form W-4 and must meet current IRS rules for substitute returns. You 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.

    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 IRS Withholding Calculator for help in completing Form W-4. Nonresident aliens must follow special instructions when completing a Form W-4. Have your nonresident alien employees see Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens, and the Form 8233 Instructions, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, before completing a Form W-4.

    You may establish an electronic system to receive Forms W-4 from your employees. See Employment Tax Regulations section 31.3402(f)(5)-1(c) for more information.

    You can provide the Spanish version of the Employee’s Withholding Allowance Certificate, Form W-4(SP) (PDF) in place of Form W-4 to your Spanish-speaking employees.

    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. Refer to Chapter 4 of Publication 17, Your Federal Income Tax For Individuals.

    For additional information, refer to Publication 15, (Circular E), Employer’s Tax Guide, and Publication 505, Tax Withholding and Estimated Tax. 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.

    Exemption from Withholding
    If an employee qualifies, he or she can also use Form W-4 (PDF) 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 may apply; refer to the instructions for Form W-4. A Form W-4 claiming exemption from withholding is valid for only the calendar year in which it’s filed with the employer. 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 doesn’t 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’s valid, withhold as you did before.

    Invalid Form W-4
    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, material defacing of the form, or any writing on the form other than the entries requested. 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’s false. When you get an invalid Form W-4, don’t use it to determine federal income tax withholding. Tell the employee that it’s invalid and ask for another one. If the employee doesn’t give you a valid one, withhold taxes as if the employee is single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this employee that’s valid, withhold as you did before.

    Recordkeeping Requirements
    After the employee completes and signs the Form W-4, you must keep it in your records for at least 4 years (See Publication 15, (Circular E), Employer’s Tax Guide)). This form serves as verification that you’re withholding federal income tax according to the employee’s instructions and needs to be available for inspection should the IRS ever request it. Form W-4 is still subject to review. You may be directed (in a written notice or in future published guidance) to send certain Forms W-4 to the IRS. You must be able to supply a hardcopy of an electronic Form W-4.

    Lock-in Letters
    The IRS uses information reported on Forms W-2, Wage, and Tax Statement, to 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 you specifying the withholding rate and a 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 you adjust withholding based on the lock-in letter.

    The IRS will send a letter to the employee explaining that the IRS will require you to start withholding additional income tax unless the employee contacts the IRS to explain why the employee shouldn’t 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, you’ll also receive a notice to provide to the employee.

    After the lock-in letter takes effect, you must disregard any Form W-4 that results in less tax withheld, until the IRS notifies you otherwise. However, you must honor any Form W-4 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’t override the lock-in letter to decrease withholding via an electronic Form W-4 system. Lock-in letter provisions also apply to employees rehired within 12 months from the date of the notice.

    After the lock-in letter takes effect, if the employee wants to claim complete exemption from withholding or claim a withholding rate, withholding allowances, or an 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 are provided in the lock-in letter.

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