Form W-4 is the tool to calculate and helps the employers to hold some amount from the employees’ paycheck. All the employees are required to fill this form, based on which the employers calculate the amount to withhold. The form contains the employee’s income information along with various other information that helps in computing the correct withholding amount. The employers retain the amount for paying federal taxes to the government.
Requirements of the Form W-4
Every employer must have their employees’ W-4 form. The independent contractors, however, are not required to fill this form, they need to fill the form W-9 instead. Employers should get the form filled for all the new employees. All the employees who have a changed life circumstance, such as, marriage, etc., that can affect their withholding are also required to fill the form. All the employees who wish to claim exemption from withholding are also required to fill the form.
Guidelines on Filling the Form
An employer cannot fill the form on behalf of the employees. He cannot guide them on what to fill in the form. He can, however, assist them for the same. Employers need to moreover tell the employees when they are liable to fill the form. The employers need to implement safeguards in an online form filing system. This will prevent the employees from making any changes when the IRS investigation starts for the withholdings.
Recent Updates in Form W-4
The government has recently added a new tax bracket, standard deductions. They have also expanded credits for families with children. The TCJA has almost doubled the standard deduction and brought lower tax rates.
New Changes in the Form
IRS has issued a draft of the Form W-4 that will come into effect from the year 2020. The new draft ensures to provide the simplicity of filling the form. It also ensures of accuracy and privacy of the amount filled and calculated. It will moreover reduce the burden of employers and payroll processors.
Potential Repercussions for Incorrect Filing of the Form
If employees claim for something for which they are not liable to claim then they can receive a penalty of $500.
Employees are Liable to Complete the Form W-4
As per SHRM, the employees who fit into any of the following categories are required to complete the form:
- Employees who have two incomes or earning spouse.
- Employees who were not employed for the whole year.
- Who has derived income from dividends or capital gains or from securities and that comes under taxable accounts?
- Employees who claim child tax credits or earned income tax credits.
- Employees who have itemized deductions in the year 2017.
- Who has high income and comes under a complex tax structure.
If an employee claims more than 10 allowances, he must report about the same to the IRS. It is, however, challenging to know all the ins and outs of the form but not so difficult after some assistance. Employers must provide all the required information to the employers to stay away from any legalities.