The Internal Revenue Service requires all new hires to complete a Form W-4. Payroll employees review every W-4 to catch any errors that could cause problems with the IRS, and withhold taxes from the employee's paycheck based on the information on the W-4. When mistakes occur, the responsibility may rest on the payroll department or on the employee depending on the circumstances.
Form W-4 Purpose
Employees complete a W-4 form to let their employers know the amount of money that they should withhold from each paycheck for federal and state taxes. Employers adjust the amount of withholding taxes based on the number of allowances that an employee claims. The more allowances that an employee claims, the less money an employer takes out in withheld taxes per paycheck. As an employee, you can claim one allowance for yourself, one for your spouse, and one for each child or another dependent who you claim on your tax return.
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Exemptions on a W-4 Form
In some instances, employees can claim that they are exempt from withholding, which means employers do not withhold any federal taxes from their paychecks. However, the IRS has strict rules about who qualifies for an exemption. Typically, you need to have had no income tax taken out in the year before the one in which you claim an exemption, and you must also not anticipate owing any taxes in the existing year for which you are claiming an exemption.
When a W-4 Form Is Entered Incorrectly
There are two ways in which a W-4 form might be entered incorrectly: the employer makes a mistake in transcribing the information for payroll purposes, or an employee makes an error when filling out the form.
As a result of the mistake, the employer could withhold less tax than the employee owes, which means the employee owes the government money at the end of the year. If this occurs, it is the responsibility of both the employer and employee to inform the IRS about the error.
The employee must fill out Form 4669 Statement of Payments Received, which details all payments that the employee received without having federal taxes withheld.
The employer then completes a Form 4670 Request for Relief from Payment of Income Tax Withholding. This form informs the IRS that the employer is seeking relief from failing to withhold required federal taxes for an employee.
The employer includes the Form 4669 and sends off both documents to the IRS. After reviewing the documents, the IRS sends a notice to the employee listing the amount of back taxes owed. It is the employee's responsibility to pay these outstanding taxes.
The reason the employer sends Form 4670 is to request relief from liability for payment of the taxes that the employee owes.