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, 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 a 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. An exception is made when you receive a notice (commonly referred to as a "lock-in-letter") from the IRS specifying the withholding rate (marital status) and maximum number of withholding allowances permitted for the employee. You must then honor the lock-in letter. See the Lock-in Letters section below for further information. Also, see below the discussions on Exemption from Withholding and Invalid 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 on the IRS website for help in completing Form W-4. Nonresident aliens must follow special instructions when completing a Form W-4. Tell any nonresident alien employees to see Notice 1392 and the Form 8233 Instructions before completing a Form W-4.
An employer can download and print a Form W-4 from the IRS website at www.irs.gov or order multiple Forms W-4 online at http://www.irs.gov/Businesses, select Online Ordering for Information Returns and Employer Returns. Employers 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.
You may establish a system to electronically receive Forms W-4 from your employees. An employer should make a paper option reasonably available upon request to any employee who has a serious objection to using the electronic system or whose access to, or ability to use, the system may be limited (for example, as a result of a disability). See Regulations section 31.3402(f)(5)-1(c) for more information.
You can provide Form W-4(SP) (PDF), Employee's Withholding Allowance Certificate (Spanish version), 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, Publication 505, Tax Withholding and Estimated Tax, and the Withholding Compliance Questions & Answers on the IRS website. 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.
Exemption from Withholding
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 may apply. See the instructions for Form W-4 (PDF). 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.
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 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 is 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.
Record Keeping 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 are 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. Employers may be directed (in a written notice or in future published guidance) to send certain Forms W-4 to the IRS. The employer must be able to supply a hardcopy of an electronic Form W-4.
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 (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 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 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, you will 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 (marital status) 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. 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, and 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 will be provided in the lock-in letter.
Page Last Reviewed or Updated: May 02, 2013