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W-4 Form


W-4 Form

W-4 Form

When an employee is hired, he or she is required by law to fill out a W-4 form, which can be done either on paper or in an electronic format. An employee uses this form to notify the payroll staff of his or her marital status and the number of allowances to be taken; this information has a direct impact on the amount of income taxes withheld from the employee's pay. The form is readily available in Adobe Acrobat form through the Internal Revenue Service's web site. An example is shown in Exhibit 7.1.

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Exhibit 7.1: Form W-4

There are two pages associated with the Form W-4. In the middle of the first page is a personal allowances worksheet; the actual form is at the bottom. The second page is used only by those taxpayers who plan to itemize their deductions, claim certain credits, or claim adjustments to income on their next tax return.

On the first page of the form, an employee generally should accumulate one allowance for him- or herself, another for a working spouse, and one for each dependent. Additional allowances can be taken for "head of household" status or for certain amounts of child or dependent care expenses. The total of these allowances is then entered on line 5 of the form at the bottom of the page, along with any additional amounts that an employee may want to withhold from his or her pay-check. (Note: They cannot base withholdings on a fixed dollar amount or percentage, but they can add fixed withholding amounts to withholdings that are based on their marital status and number of allowances.) An employee can also claim exemption from tax withholding on line 7 of the form. This lower portion of the form should be filled out, signed, and kept on file every time an employee wants to change the amount of an allowance or additional withholding, in order to maintain a clear and indisputable record of changes to the employee's withholdings.

If an employee has claimed exemption from all income taxes on line 7 of the form, this claim is only good for one calendar year, after which a new claim must be made on a new W-4 form. If an employee making this claim has not filed a new W-4 by February 15 of the next year, the payroll staff is required to begin withholding income taxes on the assumption that the person is single and has no withholding allowances.

The second page of the form is a considerably more complex variation of the top portion of the first page, and is intended to assist employees who itemize their tax returns in determining the correct amount of their projected withholdings. The page is split into thirds. The top third is for the use of single filers; the middle third is intended for a household of two wage earners; and the bottom third is a wage table to be used by households of two wage earners.

If for some reason the payroll staff has not received a W-4 form from a new employee as of the date when payroll must be calculated, the IRS requires payroll to assume the person to be single, with no withholding allowances. This is the most conservative way to calculate someone's income taxes, resulting in the largest possible amount of taxes withheld.

A little-known rule is that the IRS requires an employer to send to it any W-4 forms for employees who may be taking an excessive number of allowances or who are claiming exemption from withholdings. This is the case when an existing employee claims more than 10 withholdings, or claims full exemption from withholding despite earning more than $200 per week. The W-4 form should be sent to the IRS only if the employees submitting the forms are still in employment at the end of the quarter. The forms should be sent to the same IRS office where the corporate Form 941 is filed, along with a cover letter that identifies the business and notes its Employer Identification Number (EIN).



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