When you hire an employee, you are required to have them complete Form W-4, Employee's Withholding Certificate. This form provides details such as the employee’s filing status, adjustments for multiple jobs, eligible credits, other income, deductions, and any additional amount they wish to withhold from each paycheck. Employers use this information to calculate the appropriate amount of federal income tax to deduct from the employee's wages.
If an employee fails to submit a properly completed Form W-4, you must withhold taxes as if they are filing single or married filing separately with no other adjustments (steps 2, 3, or 4 left blank). This results in withholding based on the standard deduction for a single filer with no additional adjustments.
Handling Revised Form W-4 Submissions
If an employee submits an updated Form W-4, you must implement the changes no later than the first payroll period ending on or after 30 days from the date you received the form.
You are required to honor the updated Form W-4 unless it falls under one of the exceptions listed in the sections on invalid forms or lock-in letters.
✅ Accessing Form W-4:
You can download and print Form W-4 from the IRS website or order multiple copies by calling 800-TAX-FORM (800-829-3676).
Employers may also use substitute versions of Form W-4, as long as they include identical language, tables, instructions, and worksheets as the official form.
Employees cannot create their own versions of Form W-4. If they submit a self-created form, treat it as if they failed to furnish the certificate.
Form W-4 Guidance for Nonresident Aliens
Nonresident alien employees must follow special instructions when completing Form W-4.
Refer them to Notice 1392, which provides supplemental instructions for nonresident aliens.
They should also review Form 8233 (Exemption From Withholding on Compensation for Independent and Certain Dependent Personal Services of a Nonresident Alien Individual).
For additional information, consult Chapter 8 of Publication 519 (U.S. Tax Guide for Aliens).
Electronic Form W-4 Systems
Employers may establish an electronic system for collecting Form W-4s.
Ensure your system adheres to the requirements outlined in Employment Tax Regulations Section 31.3402(f)(5)-1(c) and Publication 15-A (Employer's Supplemental Tax Guide).
Penalties for Inaccurate Form W-4 Submissions
Employees should be informed of the importance of submitting an accurate Form W-4.
If an employee knowingly submits a Form W-4 that results in insufficient withholding without a reasonable basis, they may face a $500 penalty.
For further details, consult Chapter 4 of Publication 17 (Your Federal Income Tax for Individuals).
Exemption from Withholding
Employees may claim exemption from federal income tax withholding by indicating this on Form W-4.
✅ To qualify for exemption, the employee must:
Have had no federal tax liability in the previous year.
Expect to have no tax liability for the current year.
🚩 Key rules for claiming exemption:
The exemption is valid only for the calendar year in which the form is submitted.
To remain exempt the following year, the employee must provide a new Form W-4 by February 15.
If no new Form W-4 is submitted by the deadline, you must withhold tax as if the employee is filing single or married filing separately with no additional adjustments.
If the employee submits a new Form W-4 claiming exemption on February 16 or later, apply it to future wages only—do not refund previously withheld taxes.
Invalid Form W-4s
A Form W-4 becomes invalid if it contains:
Unauthorized changes or alterations.
Removal of certification language.
Significant defacing or unrequested markings.
False or misleading information, as indicated by the employee.
✅ How to handle invalid Form W-4s:
Do not use invalid forms for withholding purposes.
Inform the employee that the form is invalid and request a new, valid W-4.
If no valid W-4 is submitted, withhold taxes as if the employee is filing single or married filing separately with no adjustments.
However, if you have a previous valid Form W-4 on file, continue to use that form for withholding purposes.
Recordkeeping Requirements
After collecting a signed Form W-4, you must retain it for at least four years.
This serves as documentation that you are withholding taxes according to the employee’s instructions.
The form must be readily available for IRS inspection if requested.
Even if the Form W-4 is submitted electronically, you must be able to provide a hard copy upon request.
IRS Lock-in Letters
The IRS monitors withholding compliance by reviewing information from Form W-2 (Wage and Tax Statement).
If the IRS identifies significant under-withholding for an employee, they may issue a "lock-in letter".
This letter specifies the filing status, multiple job adjustments, and maximum allowable credits or deductions for calculating federal withholding.
✅ How lock-in letters work:
The IRS will notify the employee first, providing them with an opportunity to dispute the determination.
You, as the employer, will receive a copy of the lock-in letter along with instructions for the employee.
Once the lock-in letter is in effect, you must:
Disregard any Form W-4 from the employee that would reduce withholding below the lock-in letter’s specifications.
Honor forms that increase withholding, even after receiving the lock-in letter.
For rehired employees within 12 months of the lock-in letter, you must continue to follow the lock-in instructions.
❗ Important:
If the employee wants to claim complete exemption or request reduced withholding after receiving a lock-in letter, they must contact the IRS directly.
✅ Key Takeaways:
Form W-4 Purpose: Used to determine the amount of federal income tax withholding from employee wages.
Exemption from withholding: Employees can claim exemption if they had no prior year tax liability and expect none for the current year.
Invalid Form W-4s: Forms with alterations, defacing, or false information are invalid. Use previous valid W-4s or withhold as single with no adjustments.
Lock-in letters: Issued by the IRS when under-withholding issues are detected. Employers must enforce the IRS-specified withholding.
Recordkeeping: Retain Form W-4s for at least four years and be prepared to provide them if requested by the IRS.