What Happens When You Enter Incorrect W-4 Information

What is a Form W-4?

Let’s begin with the basics: Form W-4 is the Employee’s Withholding Certificate that tells an employer how much federal income tax to withhold from an employee’s paycheck. 

Don’t miss this article next: Federal Tax Withholding: Wage Bracket Method v. Percentage Method.

Filling out a W-4 incorrectly can result in withholding errors—either too much tax withheld (leading to a big refund) or too little (leading to a tax bill). 

You’ve probably received a hard copy of an employee’s W-4 before with nearly illegible handwriting.

In some cases, the burden of correcting this information and rectifying the issue falls on the employee. In other cases, you and your employee can both be responsible for the missing money. 

Occasionally, the IRS may issue an audit on your company. 

Should this occur, you will need to present the necessary paperwork—i.e., employee W-4s—when asked. Having illegible forms may raise suspicion among auditors about whether these forms are malicious or not.

IRS Regulations for Completing Form W-4 (and Penalties for False Claims)

The IRS has specific regulations to ensure Form W-4s are completed accurately and honestly. When a W-4 is filled out, it is signed under penalty of perjury that the form is true and correct​. However, several things can render this information inaccurate.

Handling Incorrect or Missing W-4 Forms

Despite best efforts, situations will arise where an employee’s Form W-4 is incorrect, outdated, or not provided in the first place. 

Here’s how to handle a few common scenarios of W-4 errors or omissions:

Employee Never Submitted a W-4

If a new employee does not turn in a W-4 by their first payroll (or an existing employee fails to submit an updated W-4 when one is required), you must withhold federal income tax as if they are single with no adjustments​.

Essentially, use the highest withholding rate. Document that no W-4 was furnished. You should still request that the employee complete the form—keep reminding them, as it is in their interest to have the correct withholding. 

But, until they do, stick to the IRS default calculation to protect your company from under-withholding. 

W-4 Seems to Have a Mistake

If an employee contacts you and says, “I think I filled out my W-4 wrong,” or if you spot a likely mistake, the fix is straightforward: have the employee fill out a new corrected Form W-4 as soon as possible. 

Do not modify the form on their behalf or make assumptions—the employees should make the corrections themselves. 

Once you receive the corrected form, apply it to the next payroll processing. 

If the mistake resulted in a significant under-withholding for previous pay periods in the current year, the employee might choose to have extra tax withheld in the remaining pay periods. 

This allows them to catch up, or they may need to pay an estimated tax.

Invalid or Altered W-4

Suppose the form was deemed invalid (due to alterations or false information). 

In that case, you will continue withholding at the default high rate (single with no adjustments) using the last known valid W-4 if one exists or the default if none does​.

At the same time, inform the employee that the W-4 was unacceptable and that they must submit a valid form. Provide them with a blank form and perhaps a copy of the IRS instructions so they can fill it out correctly. 

Always offer the chance to correct—sometimes, employees might unknowingly invalidate a form, and a quick explanation can resolve it.

Employee Claims an Improper “Exempt”

If an employee writes “Exempt” on the W-4 but clearly does not meet the criteria (for instance, a high-earning employee who had tax liability last year), this W-4 is technically invalid because the form itself states the conditions for exemption. 

The IRS requires that to claim exemption, the employee must certify they had no federal tax liability last year and expect none this year.

A valid exempt W-4 should have “Exempt” written on it and only Steps 1 and 5 completed (with no entries in Steps 2–4)​.

There is also an IRS process (lock-in letters) that often addresses false exempt claims—we will cover that in a moment.

Employee Fails To Update W-4 When Required

In some cases, an employee simply does not submit a new W-4 even though, per IRS rules, they should (e.g., they divorced and never changed their status, resulting in under-withholding). 

In these cases, the employer should at least have on record that the employee was informed or reminded. 

Send a reminder if you’re aware of the situation. If the employee still hasn’t updated the form, continue withholding based on the last valid W-4. 

From a compliance standpoint, as long as you are withholding according to a valid W-4 you have on file (or the default rules if you have no W-4), you will have generally fulfilled your withholding obligation. 

It’s ultimately the employee’s responsibility to keep their W-4 current, but good HR practice is to facilitate updates. 

Correcting Withholding Errors

If, due to a W-4 issue (or payroll input error, you withheld the wrong amount of tax, and you catch it within the same year, you may be able to correct it through payroll. 

IRS guidelines allow the correction of income tax withholding errors in the same calendar year​. 

However, if the year has closed, you should not attempt to “fix” the prior under-withholding by taking out more tax in the new year. At that point, the employee will have to settle it on their tax return (and possibly face a penalty for underpayment). 

You, as the employer, would just ensure the W-2 reflects what was actually withheld. If the error was over-withholding (too much tax taken), you can refund the excess to the employee via payroll within the same year and adjust your 941 filings accordingly. 

Always maintain documentation of any adjustments.

Follow IRS “Lock-In” Letters 

As mentioned above, the IRS operates a Withholding Compliance Program that tracks if certain employees might be under-withholding. 

In cases of serious under-withholding, the IRS may issue a lock-in letter to the employer. 

A lock-in letter will specify a minimum withholding arrangement for that employee—essentially overriding the employee’s Form W-4 claims by setting a required filing status and allowances (or additional withholding amount) that ensures sufficient tax is withheld​.

Summary: What Happens When You Enter Incorrect W-4 Information

Both employees and employers have responsibilities when it comes to incorrect W-4 information—employees should provide truthful, updated information and utilize available resources, while employers should enforce the rules and maintain proper records. 

Proper withholding throughout the year means a smoother tax filing experience, with no unwelcome bills or excessive refunds.

Here are three more articles relevant to employers and taxes:

• How Subject Wages Differ from Taxable Wages—and Why It Matters
• Navigating 2025 Payroll Tax Changes: How Providers Can Prepare for Compliance
• The Breakdown of Local and State Ohio Taxes

Frequently Asked Questions: W-4 Forms