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The W-4 Form is an important feature in IRS compliance for you and your employees, but compliance doesn’t have to be complicated. This article will explain the function and format of the W-4 and walk you through best practices for obtaining and retaining these forms.

What is a W-4 Form?

Form W-4 is an IRS tax document that your new employees must fill out on, or around, their first day. It notifies you of the employee’s withholding allowances so you may properly determine how much to withhold from their wages for federal income taxes.

Why are W-4s Important?

An accurate W-4 is a critical component of your payroll system and a valuable piece of communication between you, your employee, and the IRS about compensation. There are several reasons that the W-4 is important to both your business and its employees, including:

  • Determining Accurate Tax Information – A correct W-4 ensures that you withhold the correct amount from an employee’s paycheck for their tax return.
  • Establishing Employee Expectations – Presenting an employee with a W-4 communicates to your worker that they fulfill your requirements for employment rather than contract work and that you will be withholding a certain amount from their paycheck for taxes.
  • Proper Recordkeeping – A W-4 demonstrates due diligence on your part to obtain accurate information from an employee about their tax withholdings. Should the IRS ever want to review your information, a W-4 on file provides evidence of your compliance.

Who Needs to Fill Out a W-4?

Every new employee must fill out a W-4. You should include it with new hire paperwork so that it becomes a part of the onboarding process. Keep in mind that any employee who experiences a life event such as the birth of a child, marriage, divorce, or purchase of a house should complete a new W-4.

Contract workers, freelancers, vendors or any workers that complete a W-9 do not need to fill out a W-4.

How To Ensure a W-4 Is Properly Filled Out

The newest format of the W-4 is simplified and easier to complete than past versions. Employees should be able to easily answer most of the questions on their form, but there may be confusion when it comes to exemptions and deductions.

To better assist your employees when completing their W-4s, below are the steps to filling out the form correctly:

Step 1: Personal Info and Filing Status

Employees must first provide their personal information and filing status. This section helps calculate your standard deduction and the tax rate you should use for paycheck withholding.

Step 2: Multiple Jobs and Joint Filing

The second step of the form is only for those who work multiple jobs or are married and filing jointly with a spouse who also works. This step helps determine the correct withholding for earned income from all of the jobs. The IRS provides an estimator, worksheet, and instructions to correctly coordinate W-4s so that this step is completed correctly.

Step 3: Claim Dependents

Next, the employee must claim any dependents. This section helps calculate the child tax credit or other applicable dependent credits that the employee may be able to claim on their federal tax return.

Step 4: Adjustments

Employees have a chance to list any other earned income (i.e. interest, dividends, or retirement), deductions, or withholdings in this section.

Step 5: Sign and Date

Once the employee is certain the information provided in Steps 1-4 is correct, they must sign and date their form.

That’s it! The W-4 is a straightforward document and most employees will have no difficulty completing it. If an employee has questions about steps 2-4 and you are not a certified tax professional, it is best to direct them to a professional.

What to Do with a W-4 Once an Employee Has Filled it Out

The W-4 helps you determine important tax information for payroll. You must make adjustments to an employee’s withholdings no later than the  first payroll period on or after the 30th day after you received a new or updated W-4. You do not have to submit all W-4s to the IRS as in previous years, but you might receive a request from the IRS for forms at any time.

Once an employee’s payroll information is updated, the W-4 should be stored with other employee records. You can store forms either in paper format or electronically but either way, they must be secure.

It is important to note the proper way to discard old W-4s. Because of the sensitive information on the forms, you must destroy old forms by shredding or incineration. Digital forms should be wiped from electronic storage.

Sample W-4 Form

Now that you know how a W-4 should be filled out, here is a link to the official form on the IRS’s website:

Download W-4 Form

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Questions You’ve Asked Us About W-4 Forms

Employee W-4s can be stored in paper or electronic format. Because they contain sensitive employee information, they should be stored securely either in a filing cabinet or encrypted with a password. You should retain an employee’s W-4 for a minimum of 4 years and some states have different retention requirements.

All new employees should complete a W-4 at the beginning of their employment. New W-4s do not need to be completed every year but only when the employee experiences a life event such as the birth of a child, divorce, or purchasing a home.

Amanda has spent over 10 years building a career in Human Resources in the non-profit sector. Her roles have included HR assistant, recruitment and onboarding coordinator, and manager of learning and professional development. Although Amanda enjoys her time as an HR consultant now, she prefers to use her experience to strengthen the field through the education and development of its practitioners.

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