Business Tax Tip of the Quarter from Eric Schroeder CPA, President The Payroll Company
MANY PEOPLE DON'T KNOW THE RULES ABOUT FORM W-4
There are new regulations in effect from the IRS regarding submissions of Forms W-4. In the past, employers had to submit copies of any Form W-4 received from an employee who claimed "Exempt" status, or more than 10 exemptions.
Effective April 14, 2005, the IRS has issued new, TEMPORARY guidelines. Unless anyone objects, these temporary guidelines will become permanent. They change the procedures for submitting copies of Forms W-4 to the IRS and allow the IRS to issue a notice specifying the maximum number of withholding exemptions permitted without first obtaining a copy of the withholding exemption certificate from the employer (read: the potential exists for IRS to someday do away with all Forms W-4, replacing them with a mandated withholding amount.).
Further changes include a change to the mandatory submission rules for Form W-4. The Treasury Department and the IRS want to relieve employers of the burden of submitting copies of certain questionable Forms W-4 and want to more effectively address withholding non-compliance by using information already provided to the IRS. Under the temporary regulations, employers are no longer required to submit a copy of any Form W-4 on which an employee claims more than 10 withholding exemptions. In addition, under the temporary regulations, employers are no longer required to submit a copy of a Form W-4 on which an employee claims complete exemption from withholding for the taxable year. Instead, employers are required to submit copies of currently effective certificates only if directed to do so in a written notice to the employer from the IRS or if directed to do so under any published guidance.
If the IRS mandates a change to an employee's exemptions, and the employer and employee disagree, they must complete and mail a new Form W-4 DIRECTLY to the IRS (relieving you of the paperwork shuffle). The employer must disregard this new Form W-4 until the IRS notifies the employer to withhold tax based on the new information. However, if at any time, the employee furnishes a certificate that claims a number of withholding less than the maximum number specified in the written notice to the employer, the employer must withhold tax based on that certificate.
How do you know if the certificate is real? As you might expect, the Treasury Department and the IRS are considering additional amendments to address other issues, including, but not limited to, the criteria for identifying a valid withholding exemption certificate.
I want you to know that I am always available to assist you with any concerns.
Sincerely,
Eric Schroeder, CPA
President
Payroll Company, Inc.
erics@payrollcompany.biz
877-277-2926 (toll free)
