Form W-4 – the Employee’s Withholding Allowance Certificate – is something all payroll professionals come to know very well. However, employees don’t always feel the same way about this integral form to employment. Some employees quickly move past this part of onboarding by writing exempt, or claiming a made up number of deductions – rendering the form potentially 'invalid' or 'questionable.' So, what do you do as an employer?
First, listen to your employee if he or she has a question about the W-4. But always remind them it is the employee’s responsibility to ensure his or her W-4 is filled out correctly and filed. If he or she still claims to be exempt, ask these questions:
- Can she or he be claimed on someone else’s W-2 – such as a parent’s?
- Does she or he expect to have any type of tax liability this year?
- Did she or he have tax liability in previous years? The only way to be exempt is if an employee has no tax liability in the last year and to have none in the current calendar year.
When an employee claims to be exempt when she or he is clearly not, or claims more than 10 allowances on the W-4, these can be considered 'questionable W-4s.' In previous years, the Internal Revenue Service wanted all 'questionable W-4s' like this to be reported to the organization, but no longer. That being said, if an employee claims this many deductions, it is good to review it and be sure this isn’t false information. When doing this, be sure to highlight other important details of the W-4 – signature, address, filing status. This could hopefully deter future questions about what is withheld from a paycheck later on. If an under-withholding problem is discovered, the IRS will instruct employers to withhold at a higher rate.
Forms that have unauthorized changes or false information on them are considered 'invalid.' It is also invalid if the employee does not sign the W-4, or the Social Security number is missing. Whether by simple error, or something nefarious, these are an issue. If you know a W-4 is invalid, do not use it. Tell your employee to fill a new one and go through the same steps with a questionable W-4: ensuring the signature, address, SSN, name, filing status, allowances, and all other information are correct. If he or she does not comply, simply withhold their pay at the highest rate – single, with no withholding allowances. If the invalid W-4 came after an initial W-4, revert back to the one you believe is correct.
A new or revised W-4 must be put into place no later than the start of the first payroll period ending on or after 30 days from receiving the W-4. All employees working must submit a W-4 – including nonresidents, and nonresident aliens. Nonresident aliens cannot claim exempt, and can’t claim more than one allowance unless he or she is a resident of Canada, Mexico, or South Korea. Be sure to indicate this person’s status on line six of the W-4.
It is also important to be cognizant that as a payroll professional, you do not need to offer tax advice to your employees. That is the job of an accountant, or someone else the employee trusts with his or her personal finances.
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