Form W4-Employee's Withholding Allowance Form

Each employee is required to submit a completed Form W-4 to his or her employer when they report to work or when they want to make a change in name, social security number of the number of withholding allowances. Employees use IRS Form W-4 to claim withholding allowances and to provide their marital status, social security number and address to their employer. Employers withhold federal income tax based on the marital status and number of withholding allowances claimed on Form W-4.

Oftentimes, employees are surprised to learn that they owe tax when they file their tax return and it's usually because they did not fill out the W-4 correctly. Yes, the Form W-4 is confusing and somewhat intimidating. Nonetheless, it's very important and you should ask your accountant for help filling it out if you owe tax at the end of the year.

The IRS has a neat W-4, Withholding Calculator on its website to help employees to ensure that they do not have too much or too little income tax withheld from their pay. It is not a replacement for Form W-4, but most people will find it more accurate and easier to use than the worksheets that accompany Form W-4. You may use the results of this program to help you complete a new Form W-4, which you will submit to your employer.

The IRS claims that your information will be kept private and will only be used for purposes of the W-4 calculation. Futhermore, the IRS states that your information will not be shared, stored or used in any other way, nor can it be used to identify the individual who enters it. It will be discarded when you exit their program.

Employers are no longer required to routinely submit Form W-4 to the IRS. In Regulations published April14, 2005 the IRS announced that employers must submit copies of Form W-4 only when directed to do so in a written notice from the IRS.

Under the new rules, the IRS may issue a "lock-in" letter, which basically increases the amount of federal withholding, if they determine an employee is not entitled to claim a complete exemption from withholding or more than a specified number of withholding exemptions based on IRS records.

Employers who do not follow the IRS lock-in instructions will be liable for paying the additional amount of tax that should have been withheld.

Payroll, payroll taxes and workers compensation are facts of life for businesses with employees.  While employees may be absolutely critical to the success of your business, they consume valuable resources that increase your cost of doing business. Make a mistake in calculating payroll withholding taxes and/or paying payroll taxes and you have angry employees and the IRS to deal with.

As you proceed with your business planning, you would be wise to consider purchasing a payroll software program to help process your payroll. Take a look at our payroll software program page to get an idea what types of features and reporting capabilities are important before you buy.