This article provides an overview of resources to assist with frequently asked Federal Withholding questions.
1. Why is my employee's federal withholding consistently so low?
- In 2020, the IRS released a massive redesign to the Federal W-4 form, which also affected how individual withholding is calculated.
Per the IRS - "Allowances are no longer used for the redesigned Form W-4. This change is meant to increase transparency, simplicity, and accuracy of the form. In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in law, currently you cannot claim personal exemptions or dependency exemptions.
- The IRS provides an Income Tax withholding Assistant for Employers, which can be utilized to compare Avionte Federal Withholding with the IRS Calculation. The IRS calculator is in the format of an Excel Spreadsheet:
2. Why did my employee's federal withholding suddenly change without any adjustments?
- This typically occurs due to a pay frequency change from Weekly to Bi-Weekly caused by multiple weeks worked paid out within the same payroll period.
- Example below shows an Employee typically paid on a Weekly Frequency, where during Accounting Period 11/22 - There's multiple weeks worked paid out within that specific period: 11/22 & 11/15.
- The system will automatically change the pay frequency to Bi-Weekly in this scenario, which will result in lower Federal Withholding for the Pay Period.
- Another scenario where federal withholding can suddenly change is due to a Bonus being paid out to the employee with associated pay code = "Bonus"
- The IRS considers bonuses to be “supplemental wages.” A supplemental wage is money paid to an employee that isn’t part of his or her regular wages. The IRS says all supplemental wages should have federal income tax withheld at a rate of 22%.
3. Why does my employee's federal W-4 have no filing status selection?
- The Employee likely selected "Exempt" on the form, which according to the IRS/form instructions - there should be no Filing Status entered in conjunction with that selection.
- Per the IRS " If you claim exemption, you will have no income tax withheld from your paycheck and may owe taxes and penalties when you file your 2021 tax return. To claim exemption from withholding, certify that you meet both of the conditions above by writing “Exempt” on Form W-4 in the space below Step 4(c). Then, complete Steps 1(a), 1(b), and 5. Do not complete any other steps. You will need to submit a new Form W-4 by February 15, 2022."
4. Step 4 of the Avionte provided Federal W-4 form looks different from what the IRS provides. Is it non-compliant?
- The Avionte version is compliant & was created with guidance taken from the IRS for completing an electronic W-4 form via software application.
- Per the IRS " Electronic system to receive Form W-4. If you maintain an electronic Form W-4 system, you should provide a field for employees who are eligible and want to claim an exemption from withholding to certify that they are exempt instead of writing “Exempt” below Step 4(c). You should
also include the two conditions that taxpayers are certifying that they meet: “you had no federal income tax liability in 2020 and you expect to have no federal income tax liability in 2021.” Additionally, you must continue to provide a field for nonresident aliens to enter nonresident alien status."