A tax-exempt organization must request Form W-4, the employee withholding form, and verify employee ID information (SSN). To know how much federal income tax to withhold from an employee’s wages, the tax-exempt organization should have a Form W-4, Employee's Withholding Allowance Certificate, on file for each employee. The amount to be withheld is determined by the employee’s gross wages and the information submitted by the employee on Form W-4.
The information on Form W-4 includes:
employee’s marital status;
number of withholding allowances claimed;
employee’s request to have additional tax withheld; or
employee’s claim to exemption from withholding.
The tax-exempt organization should ask each new employee to provide a signed Form W-4 by his or her first day of work. This certificate is effective with the first wage payment and lasts until the employee files a new certificate.
If an employee does not provide the organization with a Form W-4, the organization should withhold tax as if the employee were a single person who has claimed no withholding allowances. If not enough tax is withheld and the employee has not provided a Form W-4 or has claimed an exemption from withholding, the employee may be subject to penalties. An employee who claims exemption from withholding must renew his or her status by filing a new Form W-4 with the employer by February 15 of each year.
Note: Student status does not automatically exempt the employee from income tax withholding.
Generally, Forms W-4 should be retained for the tax-exempt organization’s records. Note, however, that in some circumstances the organization must send copies to the IRS.
For more information on withholding, see Publication 505, Tax Withholding and Estimated Tax.
Employees can determine whether they are having the right amount of income tax withheld using the withholding allowance calculator.
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