So your new employee just started—congrats! Before you add this employee to their first payroll run, there's a form they need to fill out and submit to you: the Form W-4. It determines exactly how much federal tax comes out of every paycheck. Here's what you need to know about W-4 requirements, what to do once you have it, and how to update it if they ever submit a new one.
What’s the Form W-4?
The IRS Form W-4, officially called the Employee's Withholding Certificate, is an Internal Revenue Service (IRS) tax form that’s used to document your form W-2 employees’ tax withholding. Their W-4 tax form selections determine how much federal income tax you should withhold from their paychecks.
How to help employees fill out their Form W-4
Remember that as an employer, you shouldn’t give tax advice to your employees. Point them to this article on how to fill out the 2026 W4 form or to contact a CPA or tax advisor for specific guidance.
When your employees fill out the current W-4, it will ask them for information in five different sections, which is then used to calculate the proper withholding amount. (This process replaced withholding allowances.)
Add personal information. They must provide their name, address, Social Security number, and filing status (such as single, married filing jointly, married filing separately, or head of household).
Map out withholding based on whether you have multiple jobs and/or your spouse also works. This is only needed if your employee (or their spouse) has more than one job at once. If this is their situation—especially if either of them has self-employment income—encourage employees to use the IRS Tax Withholding Estimator.
Claim dependents. The IRS provides a flat dollar amount for qualifying children and other dependents—including the child tax credit for kids under 17. (Find tips on how to complete this section here.)
Make other adjustments. The employee may add other income, tax deductions beyond the standard deduction, or extra withholding they want taken out.
Sign the form. The employee’s signature validates the form.
Only Steps 1 and 5 are required for everyone. Steps 2–4 only apply if they fit your employee's situation, so many employees will be able to finish the form quickly.
Employees need to fill out the W-4 accurately so that they can pay the right amount of income tax. Too much and they’ll get a tax refund when they file their tax return at the end of the year, instead of keeping the money as take-home pay. But if they deduct too little, they may owe additional taxes at the end of the year.
What to do with an employee’s W-4
Collect a completed W-4 from every new employee before their first paycheck, and use it to determine how much federal income tax to withhold from each paycheck. Keep the signed form on file for at least four years. You don't need to send copies of your employees' W-4s to the IRS.
When you run payroll with Gusto, employees can e-sign their W-4 (and I-9) as part of self-onboarding. Gusto stores the completed forms electronically so you don't have to manage paper files.
What to do if an employee fills out a new W-4
Employees update their W-4 for all kinds of reasons—when they get a raise, have a new baby, are getting married, started a second job, or simply want a different amount withheld.
When an existing employee does submit a new W-4, you're required to put it into effect no later than the start of the first payroll period ending on or after the 30th day from when you received it.
Before you apply the new W-4, make sure the form is actually valid: it needs to be signed, and Steps 1 and 5 need to be fully completed. If it's missing either, notify the employee that they need to fix the form then treat it as if the employee never submitted a new W-4 (i.e. keep withholding based on the last valid form you have on file).
With Gusto Payroll, employees can update their own W-4 directly in their account, and the new withholding automatically applies to their next payroll run. This means no manual re-entry is needed on your end.
Once you've confirmed the form is valid and no exceptions apply, update your payroll system and keep the signed form on file for at least four years.
When employees are legally required to update their W-4s
Employees are legally required to update their W-4s when they meet any of the criteria below:
Life changes that reduce withholding entitlement: If a change in circumstances (like a divorce) mean an employee is no longer entitled to the withholding they've claimed, they must submit a new W-4 within 10 days of the change.
Loss of exemption status: If an employee claimed "Exempt," that status expires every year. They must submit a new W-4 by February 15 of the following year to keep claiming it. If they don't, you must start withholding as if they're single or married filing separately, with no other adjustments.
No longer eligible for exempt status: If an employee claimed exempt but their situation changes (e.g., they now expect to owe tax), they're legally required to file a new W-4 within 10 days of the change.
Otherwise, unless an employee wants to make changes, the IRS doesn't require a new W-4 each year. The existing form stays in effect until the employee submits a new one.
That said, you can nudge employees to take a fresh look whenever they have a major life event that affects their taxes, like:
Getting married
Having or adopting a child
Picking up a second job, or a spouse starting one
A significant raise, bonus, or drop in income
FAQs
What does it mean if an employee is exempt from withholding?
Exempt status means an employee had no federal tax liability last year and expects none this year, so they check the exemption box on their W-4 instead of completing Steps 2–4. It's not permanent. Employees must file a new W-4 by February 15 each year to renew it, or you must default to withholding as single or married filing separately, with no adjustments.
What if my employee doesn’t fill out a W-4?
If you don't receive a Form W-4 from an employee, you must withhold their federal income tax as if they're single or married filing separately, with no other adjustments in Steps 2–4. This typically results in the highest withholding amount for that employee.
What happens if an employee submits an invalid or incomplete W-4?
An invalid W-4 (unsigned or missing Steps 1 and 5) is treated as if the employee never submitted one. You must withhold as if they're single or married filing separately with no adjustments, and continue that way until you receive a properly completed form. Never accept a substitute form the employee created themselves.
What is an IRS lock-in letter or letter 2800C?
A lock-in letter, or an IRS Letter 2800C, is an official notice directing you to withhold federal income tax at a specific rate for an employee the IRS has flagged for under-withholding. It overrides that employee's W-4, and you must follow it—including giving the employee a copy—until the IRS issues a release.
