So your employee just started—congrats! But there’s one more hurdle to getting them their first paycheck: filling out Form W-4.
What’s Form W-4?
Form W-4 is an IRS tax form that’s used to document your employees’ “withholding allowances” in order to calculate their federal income taxes. This is a fancy way of saying it will determine how much or how little is withheld from their wages for federal income taxes.
How do I help my employees fill out Form W-4?
The W-4 may look intimidating at first glance, but your employee will most likely know the answers to most or all of the questions it asks. Have them read the form carefully and answer each question. There will be numbers associated with their answers that they’ll have to add up at the end. This final number is called a withholding allowance. A lower number (like 0 or 1) means more federal income tax will be taken out of their paycheck; higher numbers (2+) correspond to less tax being taken out. It’s important to have your team answer the questions accurately so that they can pay the right amount of income tax. Too much and they’ll get a refund when they file their income tax return at the end of the year (no big deal), but if they deduct too little, your employee could owe additional taxes at the end of the year. Ouch! When in doubt, have your employee check with a certified tax professional to help them determine their correct withholding allowances.
Please note: If your employee lives in a state with income tax (that’s all states except Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington, and Wyoming), they may also need to complete a state withholding form. Click here for a list of the states and their acceptable forms. Read the instructions on each applicable form carefully as requirements vary by state.
I’m an employer. What about my employees’ W-4s?
If you don’t receive a Form W-4 from your employee, you are required to withhold as if they are single with zero allowances. Encourage your employees to read the W-4 form carefully and do their best to fill it out. If they have questions about their W-4, they should also consult with their own certified tax professional for help.
You do not generally need to send a copy of the Form W-4 for you or your employees to the IRS. However, in some cases the IRS may ask you to send them a copy for a specific employee, or they may send you a letter advising you of the maximum withholding exemptions for a specific employee(s). You must follow the instructions in these letters carefully, including complying by the required deadline, and providing your employee with a copy of the “lock-in” letter.
Have more questions? Here is a list of FAQs regarding W-4s and withholding.
Updated August 18, 2017
This article provides general information and shouldn’t be construed as tax advice. Since tax rules may change over time and can vary by location and industry, please consult a CPA or tax advisor for advice specific to your business.