Responsibilities When Collecting W-4s

Cutting Cost Termination

Employees don’t always take the task of filling out their W-4 forms seriously. They may write “exempt” on the withholding portion of the form, or even claim a false high number of withholding allowances to ensure that no federal or state tax is withheld.

When Employees Ask Your Advice

The W-4 form itself offers some guidance. Here are some questions to help the employee determine if he or she can legitimately claim to be exempt from withholding:

Invalid W-4s

    According to the IRS, a W-4 form is invalid if any unauthorized addition or change is made to it, or if the employee indicates in any way that the information on the form is false.
hr_cost_cutting_payroll_list_employee_scratch_out_terminate_amIf employees seem to be taking the process too lightly, you may need to inform them that an individual who files a false W-4 form may be subject to a $500 penalty. 
  So what is your responsibility if you are given an invalid W-4? Don’t use it. Instead, tell the employee that the form is invalid, and instruct him or her to fill out a new one. If a new, valid form is not received, withhold taxes at the highest rate (as if the employee is single and has no withholding allowances). Or, if you have an earlier W-4 form that is valid, you can withhold according to that form.

1. Did the employee have a tax liability in the previous year? If the employee received a refund of all federal income tax paid (or had a right to a refund), he or she may be able to claim exempt, depending on the answer to the next question.

2. Does the employee expect to have a tax liability this year? To determine the answer, ask these questions:

a. Can the employee be claimed on someone else’s income tax return this year (such as a parent)?

b. Will the employee’s income for 2013 exceed $1,000 and include more than $350 in unearned income (such as interest or dividends)? If the answers to both a and b are yes, the employee may have a tax liability for the year, and cannot claim to be exempt from