Everything You Need to Know About the W-4

By Merle Capello CPP
February 3, 2016

As you know, the W-4 Form is used so that your employees can have the proper amount of federal tax withheld from their pay. Pretty simple, right?  It can become complicated, though and I’m here to help you through it.

First Thing’s First

Administering the W-4: You already know that an employee has to fill out a W-4 when hired. That form remains in effect until the employee files another to supersede the first one. When an employee brings you a new W-4 form, you have up to 30 days to enter it in your system. You’ll probably be able to do it more quickly, but just know that the requirement for completion is 30 days.

The purpose of the W-4: The W-4 is only to be used to determine withholding or exemption from withholding. As a seasoned payroll professional, I’ve seen and heard it all, and experience has taught me what to instruct employers not to do! Don’t use it as proof of address. Don’t tell an employee what to fill out for allowances or exemptions. It’s your employee’s responsibility to fill out the form correctly – the employee will be the one signing this form after all!

However, when employees have questions, you should be able to answer them. Here’s a quick guide on how to fill out the W-4, and handle and supervise the W-4 process.

General Guidelines

There are guidelines on the form for determining the number of allowances to deduct. While the language may be technical, the instructions still serve their purpose. Your employees can reference these for additional information, and if they have a specific issue which could complicate their tax situation.  The vast majority of employees have a straightforward tax liability and they can fill out the form easily. Let’s now look at some of the exceptions to the rule:

  • Exempt from withholding – a truly exempt employee is a rare thing, as only workers who earn under $1700 per year are exempt from withholding. Employees may think that they want to fill out the form as “exempt”, but a close reading of the instructions will show that indeed, the employee may not truly be exempt.  An exemption from withholding means no Federal tax will be withheld, and that is probably not the outcome the employee wants.
  • Head of Household – a head of household exemption can only be used by an unmarried person who is responsible for more than 50% of the household support for himself and his dependents.

Filling It Out Correctly

The fields or boxes on the actual form (bottom of page 1) are simple to fill out.  The name, address, city, state and zip code, as well as the employee’s Social Security number, must be filled in.

Box 3 contains the marital status checkboxes. The employee must designate whether the “Single” or “Married” withholding tables should be used for calculating withholding. The employee can opt to claim “Married, but withhold at a higher single rate”, in order to have a higher level of withholding. Remember, this has nothing to do with actual marital status, but only a guide for the correct withholding table. If an employee knows that he or she will have high taxable income, even though married, he or she can opt to check the “Single” or “Married, but withhold at the higher single rate” box.

Box 4 contains the wording regarding your employee’s name:  the name on the form and the name in your payroll system should always be the name on the employee’s current, valid Social Security card.  Keeping the two in sync ensures that the employee contributions to the Social Security fund are applied correctly to the employee’s record.  Any name change should be accompanied by a new Social Security card as proof of the change.

On-Line 5, the number of allowances is to be written. On-Line 6, your employee may opt to have an additional flat amount of money withheld each paycheck.  This might be used in cases where an employee has received non-wage taxable income (e.g. interest-bearing accounts, like a savings account) and wants to be sure that sufficient tax is withheld.  Only an additional amount is acceptable, not a percentage.

The employee must sign the form for it to be valid.  The payroll team must know that this form expresses the employee’s wish and it is made voluntarily.

What Makes the Form Invalid?

Any of the following errors can make a W-4 invalid, so don’t accept it if:

  1. It’s unsigned.
  2. Any of the printed information is crossed out or changed.
  3. An employee is trying to claim “Exempt” and had filled out anything other than boxes 1, 2, 3, 4,   7 plus the signature.

Show the employee the information on the top, or show him or her the Federal Publication 15, which details all the rules we’ve discussed here.

How NOT to Use the Form for Withholding

Some employees might decide that the withholding tables don’t do what they want, and adjust the W-4 to their specifications. For instance, where line 6 allows for an additional dollar amount to be withheld, some employees might cross out the additional dollar amount and enter a percentage, like “30%”. It should be known that this is illegal; periodic (pay period) withholding can only be based on the approved tables plus additional flat amounts, if so requested.  No other calculation is permitted.

The administration of this necessary form isn’t always clear cut and can be downright confusing at times. As a payroll professional, I know this. That’s why I wrote this guide to instruct you through some of the more problematic areas of the W-4. I hope this article helps you in acclimating your new hires and assists in your understanding of the W-4 so you can explain how it works for your new employees.

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