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May 2018 - Back to the Basics: Federal W-4 Compliance

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With the availability of the Avionté Paperless Mobile Onboarding and the ability to request the completion of E-Signature Documents powered by Adobe Sign, our focus this month for compliance is the W-4 form.

 

Who needs a W-4 form?

When you hire an employee, you must have the employee complete Form W-4, so that you, as the employer, the marital status, withholding allowances and any additional amount to use when calculating federal income tax withholding for the employee.

 

What if the employee doesn’t properly complete the form?

If the employee does not properly complete the form, you must withhold income taxes as if the employee was single and claiming no allowances.

 

Can I provide my employees with a Spanish version of the form?

Yes, you can provide the Spanish version of the form, Form W-4(SP) instead of Form W-4 for Spanish-speaking employees.

 

My employee updated their W-4 form, when must the employer change the withholding?

If you receive an updated W-4 form, you must put that form into effect no later than the start of the first payroll ending on or after the 30th day from the date the revised form was received. The employer should honor the changes unless the form is invalid or a lock-in letter applies.

 

Can my employee claim exemption from withholding?

Yes, if the employee qualifies, he or she can claim exemption from federal income taxes on Form W-4. Claiming exemption is only good for the calendar year in which it is filed with the employer. If the employee wants to continue to be exempt from withholding in the next year, they must provide you a new W-4 claiming exempt by February 15th of that year. If employee does not provide a new form, you should withhold as single with zero allowances, unless there is a prior W-4 was in effect for the employee in which case you would continue to withhold based on the prior W-4.

 

In the past, I was required to submit to the IRS all Form W-4s claiming exempt or that claimed more than 10 allowances. What Form W-4s do I have to submit to the IRS?

You no longer need to routinely send the IRS forms claiming exempt or over 10 allowances. There may be circumstances when the IRS will ask you to submit copies for certain employees and if requested, you should comply with that request.

 

How does a non-resident alien complete the W-4 form?

Non-resident aliens must complete Form W-4, as any employee should. There is an exception to this if the non-resident alien employee is claiming a tax treaty exemption, in which case they should not complete the W-4 form. If completing the form, certain rules apply, (1) must check the Single box on Line 3, (2) write “non-resident alien” on Line 6, and (3) cannot claim exempt on Line 7. For more information on taxation and completing the Form W-4 for non-resident aliens, see Notice 1392 from the IRS.

 

Best Practices:

 

* Review Form W-4s submitted by employees.

Employers should be concerned about their liability if they suspect an employee is submitting a form that does not accurately reflect their tax liability. Examples could include an employee changing allowances or claiming exempt to avoid income tax withholding on special payments such as a bonus. If an invalid Form W-4 is provided to the employer, it should be rejected and the employer should ask the employee for a new form. For more information on the employer’s obligation regarding invalid forms, refer to Publication 15.

 

* Be aware of lock-in letters.

If an underwithholding issue is found by the IRS for an employee, the employer may receive a lock-in letter, specifying the maximum number of allowances permitted for the employee. Once the lock-in letter takes effect, the employer must disregard any W-4 form that results in less tax being withheld and instead withhold at the rate dictated by the IRS.

 

How Avionté Can Help:

 

* Employee Tax AQ: The Employee Tax AQ breaks down the amounts of each tax that each employee (including tax-exempt employees) is withholding. The Employee Tax Info report is especially helpful if you need detailed employee tax information and/or filing statuses.

 

* DRM (Data Requirement Message) – Our May release will include a new DRM that flags employees marked as True Exempt during payroll processing.

 

Resources:

https://www.irs.gov/taxtopics/tc753: Topic No. 753 Form W-4 – Employee’s Withholding Allowance Certificate

https://www.irs.gov/pub/irs-pdf/p15.pdf: Employer’s Tax Guide


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