What is a W-4 form?
A W-4 Employee’s Withholding Certificate, also known as a W-4, is a type of tax withholding document that employees fill out and submit to employers for their files. It includes all of the information employers need to file taxes and fill out W-2s during tax season. The form records each employee’s withholding allowances for the tax year and needs to be updated annually or in the event of a change in employee filing status.
Related: New Employee Forms
What is the purpose of a W-4?
As an employer, W-4 forms allow you to withhold the correct amount from your employees’ paychecks for income taxes. Businesses make monthly deposits to the IRS to fulfill their employees’ tax obligations based on their filing status, income and other deductions. The W-4 is a convenient place that records all of the information you need to make accurate payroll deductions, which are required for all workers qualified as employees.
Parts of a W-4
The W-4 is a simple form that employees complete in five steps. Each step supplies you with the information you need to send their selected tax deductions to the IRS. If you hire someone who has never filled out a W-4 before, you should be able to walk them through the process of filling it out. Here are the main parts of a W-4 that you should be aware of:
Step 1: Personal Information
The top of the form has lettered fields for the employee’s contact information:
- Name and current home address: The employee should list their full legal name and a current address where you can send their W-2.
- Social security number: An employee without a social security number can submit a W-4 if you direct them to fill out Form SS-5 to register for a social security card.
- Filing status: Employees should check the box for their status of single or married filing separately, married filing jointly or head of household. The IRS has an online tool to help your employees determine their filing status.
Step 2: Other wages
Employees that have multiple jobs or are filing taxes jointly with someone who has a job need to fill out step 2. Some employees may leave this step blank if your company is their sole source of income. An employee’s total income can influence the amount you need to withhold, and you should supply them with the IRS Multiple Jobs Worksheet to help them fill out this section. They can use the worksheet or an online estimator to determine their extra withholding amount, which they then enter in the blank field in step 4(c).
Step 3: Dependents
Employees who meet certain income criteria and have children or other dependents can claim a tax deduction in this step. As of 2021, employees can get a tax credit for $2,000 per qualifying dependent under 17 and $500 for each other dependent, though the IRS is sending additional advance payments in 2021. This section may also be left blank.
Step 4: Other
Step 4 has three fields employees can fill out to share miscellaneous income and other deductions:
- Non-work income, like interest and retirement income.
- Other deductions from the IRS Deductions Worksheet.
- Extra withholding from Step 2 and any additional amount the employee wants withheld.
Step 5: Signature
According to the IRS, your employee must sign and date their W-4 for it to be valid. Under their signature, write your business’s name and address, the employee’s first day working with you and your employer identification number.
When do employees need to complete the W-4?
Employees should complete their W-4 before receiving their first paycheck to ensure accurate tax withholding. According to the IRS, employers need to start implementing updated payroll deductions 30 days after receiving a W-4. If an employee fails to submit their W-4, use the same withholding amount from their last form. With new employees who don’t submit a W-4, make deductions assuming they will file as single with no allowances.
W-4 filing requirements
The IRS requires employers to keep employee W-4s on file for at least four years, and some states have additional requirements. They may request copies of an employee W-4 in the event of an audit or issues with the withholding amount. According to the IRS, you can keep employee W-4s electronically or as paper records.
After the legal retention period ends, you have to safely dispose of employee tax information according to the Fair and Accurate Credit Transaction Act. The FTC recommends that employers shred or burn all tax documents and permanently delete electronic files.
Making changes to a W-4
If an employee wants to change their withholding allowance, personal information or filing status, they need to fill out a new W-4. After you receive a new W-4, employers should adjust the withholding amount in your payroll system accordingly. You need to keep both their original W-4 and the updated W-4 until the four-year holding period ends.