What Is a W-4 Form & What Should Employers Know?
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Last Updated: 09/08/2023
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As the IRS has recently released a new W-4, now is a great time to refresh your knowledge about what this form is used for and how to handle these important documents.
What Is a W-4 Form?
Form W-4 is a four-page IRS form comprised of the withholding certificate, worksheets, withholding tables, and instructions. After the employee completes the W-4, also referred to as the Employee's Withholding Certificate, the employer uses that data to calculate the amount of federal income tax withheld from the worker's pay. In 2020 Form W-4 underwent significant changes to more closely align the withholding to the changes in the tax law passed in 2017, and withholding is no longer based on allowances. The 2023 W-4 form now has some minor changes, but using the most recent version is of utmost importance.
What Is a W-4 Form Used For?
The purpose of the W-4 form is to inform employers of an employee's withholding status and so that employers can withhold the correct federal income tax from your pay. (SS & Medicare are set rates so the W-4 has no bearing on those taxes). A new employee must provide an up-to-date W-4 that specifies their tax withholding status (single, married filing jointly, or head of household), their sources of income, and the dependents they wish to claim to determine the amount of their federal tax credits.
For employers and HR professionals, it's important to understand this form as well as payroll tax responsibilities with regards to the W-4 form.
W-2 vs W-4 Forms: What Is the Difference?
W-2 and W-4 forms are both important tools for employers to keep track of their employees' compensation and tax withholdings, but they are used at different times in the payroll process and have different purposes. A W-2 form is an annual statement given by employers to their employees that provides information on how much they earned during the year, as well as how much taxes were withheld and the value of any benefits provided (if applicable) from their paychecks. Employees will use the W-2 to complete their individual tax returns.
W-4 forms are completed by employees before they start a new job. They provide employers with the necessary personal information (such as marital or dependent status) to determine the proper amount of tax deductions and withholdings. While the employee is the one completing the W-4, the information provided on the form is primarily used by the employer as a basis for payroll calculations throughout the employee's term of employment.
What Are Allowances on W-4?
On the W-4, withholding allowances refer to the number of exemptions that an employee can claim on their wages to reduce the amount of taxes taken out of their paycheck. Generally, the more allowances claimed, the less tax that will be taken from each paycheck throughout the year. If the employee claims more allowances than they actually qualify for to have a larger paycheck each period, this can result in too little taxes being taken out, resulting in the employee owing a large tax bill at the end of the year.
However, it is not up to the employer to provide tax guidance or fact-check an employee's reporting. The number of allowances an individual claims should accurately reflect the information that was provided on their W-4 form. If the employee is unsure how to complete the form, they should speak with a certified financial advisor to determine what they should claim for their individual situation.
Please note that allowances are no longer used on the Form W-4 from 2020 and onward.
Who Needs To Fill Out a W-4 Form?
It should be completed by any new employee. However, any employee who wants the most accurate amount withheld from their pay should complete a new W-4 and use the IRS Tax Withholding Estimator. Additionally, any current employee should fill out a new W-4 if:
- There's a change in filing status (e.g., an employee gets married or divorced, or becomes a head of household).
- There's a change in the number of dependents for whom a child tax credit can be claimed.
- A spouse enters or leaves the workforce.
- An individual takes on a second job.
How To Fill Out a W-4 Form as an Employer
While the W-4 is primarily completed by the employee, there is a small section at the bottom of page 1 labeled "Employers Only." Employers or HR representatives of an employer will need to enter the following information:
- The name and address of the company (If your company has multiple locations, you can use either the home office address or the address of the location where the individual will be employed).
- The worker's first date of employment.
- Your employer identification number (EIN).
In addition to completing that section of the form, your responsibilities as an employer also include:
- Maintaining the employee's completed and signed form on file.
- Accurately recording the provided information in your payroll system.
- Calculating the employee portion of any federal taxes and sending them to the IRS along with your employer portion of the taxes.
How To Help Employees Fill Out a W-4
If your employee is unfamiliar with the W-4 completion process, they may request some assistance in completing the form. While you should not provide tax advice or tell them what to claim on the form, there are still steps you can take to provide assistance.
- Be sure to provide all pages of the IRS form, including the instructions. The IRS already provides detailed instructions to guide employees through the process of completing the form. Unfortunately, some employers may think they are being helpful by only providing the pages that need to be filled out. Make sure your employees have all the information, including instructions and calculation tables necessary for properly completing the form.
- Guide them to the appropriate resources. The previous year's tax return can be a great resource to employees for determining how many deductions can be claimed or how much income was earned from other jobs. If they still have questions or tax-related concerns, encourage them to contact a licensed tax professional.
- Familiarize yourself with the W-4. Providing specific guidance on how many children to claim or how much additional income to report isn't your role. But if employees have general questions about the form and ask questions such as, "How do I read the taxable wage table on page 4?", you can provide assistance. By becoming familiar with the form, you will be better prepared to address general questions and help your employees feel confident about completing it.
When Must All W-4 Information for an Employee Be Entered?
Completing the W-4 form is something that must be done by every employee as soon as they start work at any company. Failing to submit a W-4 on time may result in employees not having their taxes calculated correctly. If an employee fails to submit a W-4 upon hire, the company will typically withhold taxes at the highest single-filer rate, which could also cause the employee to have an unexpectedly low paycheck.
Companies are often required by law to have the proper forms completed when onboarding new employees, so it's best to have everything ready well before the deadline. If an employee hasn't filled out their W-4 form by the first date of employment, they should do so as quickly as possible after getting hired.
What if No W-4 Form Is Filled Out?
Employees who fail to provide a Form W-4 should be treated as single filers with no other adjustments.
Does the W-4 Form Have an Impact on FICA Taxes?
The withholding certificate has no impact on FICA taxes. The employer withholds the employee share of FICA based on the amount of wages subject to this tax even if an employee is exempt from tax withholding.
Does a W-4 Need To Be Filled Out Every Year?
No, a W-4 does not need to be filled out every year. Employers should remind employees, before Dec. 1 each year, to submit a new W-4 if their personal withholding situation has or will change. Form W-4 should be retained along with other records of employment taxes for at least four years after filing.
What if Employees Can Claim Exemption From Withholding?
If an employee wants to claim exemption from all income tax withholding, Form W-4 must be completed annually. Eligibility for exemption can be claimed if:
- An employee had a right to a refund of all federal income taxes withheld, and
- They expect to have no tax liability.
There are specific instructions on the current Form W-4 as to where an individual should note that they are exempt.
Make Sure Employees Fill Out Their W-4 Forms
Employers can offer employees the option of completing W-4s by paper or electronically. The IRS strongly encourages taxpayers to review their withholding situation using the IRS Tax Withholding Estimator to ensure withholding is not under- or over-withheld.
For additional peace of mind and assurance that all W-4 forms for your employees are completed accurately, filed successfully, and kept secure, it's best to work with a payroll provider that specializes in payroll taxes like Paychex.