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.
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