Form W-4 for 2016: Best Practices and Compliance Requirements · Form W-4 for 2016: Best Practices and Compliance Requirements Presented on Monday, January 25, 2016 ... 12 -4 ©2016

©2016 The Payroll Advisor 1

Form W-4 for 2016: Best Practices and Compliance

Requirements Presented on Monday, January 25, 2016

2 ©2015 The Payroll Advisor

Housekeeping

©2015 The Payroll Advisor

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Credit Questions Today’s

topic Speaker

To earn RCH credit you must


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Stay on the webinar, online for the full 60 minutes

Be watching using your unique URL

Certificates delivered by email, to registered email,

by February 25th

Today’s Topic


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Purpose and types of forms Review Form W-4 line by line Effective dates for new and expiring forms What to do if you don’t have a form Invalid or questionable forms Processing the forms in payroll Submitting and retaining forms Electronic forms Nonresident aliens and the Form W-4

About the Speaker


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Vicki M. Lambert, CPP, is President and Academic Director of

The Payroll Advisor™, a firm specializing in payroll education

and training. The company’s website

www.thepayrolladvisor.com offers a subscription payroll

news service which keeps payroll professionals up-to-date on

the latest rules and regulations.

As an adjunct faculty member at Brandman University, Ms.

Lambert is the creator of and instructor for the Practical

Payroll Online payroll training program, which is approved by

the APA for recertification credits.

http://www.thepayrolladvisor.com/

Purpose and Types of Forms


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IRS Form W-4

Actual Name: Employee’s Withholding Allowance Certificate

Purpose: To know how much income tax to withhold from the employee’s wages

State equivalents-may use IRS form or its own form

Purpose and Types of Forms


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There is also:

Form W-4S for third party sick pay

Form W-4P for pensions and annuities

Form W-4V for voluntary withholding from government payments such as unemployment compensation or social security benefits

Form W-4(SP) Spanish version


Let’s Talk About the States


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Employers must verify if the state has an equivalent form

► The States may:

►Not have their own form and use the Form W-4

►Have their own form but allow Form W-4 to be used

►Require only the state form be used

Examples


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Arizona: Form A-4 is required

California: DE4 required if withholding is different from federal withholding

No state form: Idaho—Use Federal Form W-4

MT

WY

ID

WA

OR

NV

UT

CA

AZ

ND

SD

NE

CO

NM

TX

OK

KS

AR

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VA WV

OH

MI

NY

PA

MD

DE

NJ

CT RI

MA

ME

VT

NH

AK

HI

Must use state form

May use federal Form W-4 No state income tax

Form W-4 Equivalents

Restrictions on using Fed

Form W-4

No state form must use

federal Form W-4 ©2016 The Payroll Advisor 12

Possible Other Forms on State Level


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Special forms for employee to claim exempt from state income tax

Special form for military spouse to use to claim exempt from state income tax

Forms for nonresidents of the state

Reciprocal agreement forms

For Example:


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IL has agreement with WI

Resident of WI works in IL but does not want IL tax taken out—completes Form IL-W-5-NR—NO IL tax is withheld

Employer may but IS NOT required to withhold for WI


Useful Links


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http://www.payroll-taxes.com/state-tax

http://www.bls.gov/jobs/statetax.htm









Review Form W-4 Line by Line


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First name,

middle initial

and last name

always must

appear on the

form

Address

must be

on the

form

New

Forms

must

always be

current

year

Line by Line


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Just

mention to

employee

Goes without

saying… must

have this one!

Must

designate

marital status

Must have the

number of

allowances

May have additional

dollar amount or not

up to employee no

need to put 0.00 just

leave blank

Line by Line


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Must have the

number of

allowances

Dollar amount only and

it can not stand alone.

Must be with

allowances and martial

status

Line by Line


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Line by Line


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Employee signs here Dates goes here

Employee claims

exempt here

Line by Line


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If sending to IRS

fill these boxes in

Line by Line


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Effective Dates for Forms


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All new employees need to complete form No form? Use single and zero until received

All forms except exempt forms remain in effect until a new form is received

Exempt forms expire 12-31 of each year Have until 2-15 to submit new form

Use single – zero if new form not received

Up to 30 days to input new forms

Practical Point


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Employers should not accept any withholding or estimated tax payments from employees in addition or instead of the withholding based on their Form W-4

What Makes a Form Invalid


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Any unauthorized change or addition makes a form invalid

Includes taking out any language

Employee indicating either verbally or in writing that the form is false

An incomplete form

How To Handle an Invalid Form


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Do not use the invalid form to determine withholding

Inform the employee the form is invalid

Request new form from employee

Use a previously submitted form to determine withholding

No previous form? Use single/zero

Questionable Forms


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Employers are not the Form W-4 “Police” (on the federal level anyway) and are not responsible for verifying the number of allowances claimed by the employee.

As long as it is a valid form, the employer accepts it.

Processing the Forms in Payroll


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Each form should be reviewed to ensure validity before processing Filled out completely and

correctly

Signed and dated

Invalid or incomplete forms should never be processed Return to employee

Template letters are an easy method to use

From: The payroll department

To: Insert employee’s name here

Re: Incomplete Form W-4

Dear: Insert employee’s name here.

The payroll department has received your Form W-4, dated (insert date of form here).

However, we are unable to complete the processing of the form due to missing

information. Please provide the required information where we have highlighted the form

in yellow.

When you have finished providing the missing information, please return the form to the

payroll office.

Thank you for your prompt attention to this matter.

Sample Memo for Missing Information on the Form W-4


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Sample Memo for Missing Information on the Form W-4


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Sample Memo Invalid Form W4


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From: The payroll department

To: Insert employee’s name

Re: Invalid Form W-4 submitted to payroll

Dear: Insert employee’s name here

It is necessary for the payroll department to return your Form W-4, dated (insert date of form

here). We are unable to process the form. IRS regulations do no allow us to accept and/or

process any Form W-4 that claims a fixed dollar amount only or a percentage.

According to the IRS:

The amount of income tax withholding must be based on marital status and number of allowances

only. You may specify any additional dollar amount as well.

If you still wish to change your withholding please complete a new Form W-4 and submit it to

payroll at your earliest convenience.

Substitute Employee Forms


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You cannot accept substitute Forms W-4 developed by employees as of October 10, 2007

If one submitted after that date it is considered invalid or the same has having failed to file the form

You can continue to honor any valid employee-developed Forms W-4 accepted before October 11, 2007

Submitting Forms W-4 to the IRS


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As of April, 2005, no longer required as a routine function by IRS

When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee

You may also be directed to send certain Forms W-4 to the IRS.

Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice.

IRS Review of Forms


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After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4

The IRS also uses information reported on Form W-2 to identify employees with withholding compliance problems

IRS Review of Forms


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In some cases, if a serious under-withholding problem is found to exist for a particular employee, the IRS may issue a letter to the employer specifying the maximum number of withholding allowances and marital status permitted for a specific employee

Commonly referred to as a "lock-in letter”

Lock-In Letters


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You must furnish this notice to the employee within 10 business days of receipt if the employee is employed by you as of the date of the notice

Begin withholding based on the notice on the date specified in the notice.

Usually 60 days from the date of the letter

Use Lock-In Letters for Terminated Employees If…


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You are paying wages for the employee's prior services and the wages are subject to income tax withholding on or after the date specified in the notice.

You reasonably expect the employee to resume services within 12 months of the date of the notice.

The employee is on a leave of absence that does not exceed 12 months or the employee has a right to reemployment after the leave of absence.

Modified Lock-In Letters


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The IRS may issue a subsequent notice (modification notice) that modifies the original notice

The modification notice may change the marital status and/or the number of withholding allowances permitted.

You must withhold federal income tax based on effective date specified in the modification notice.

Accepting New Forms from the Employee


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If the employee with an active lock-in letter provides you with a new Form W-4 claiming complete exemption from withholding or claims a marital status, a number of withholding allowances, and any additional withholding that results in less withholding than would result under the IRS notice or modification notice, disregard the new Form W-4

Submitting to the State


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State may still require a Form W-4 to be submitted

For example Connecticut requires the form to be submitted if the employee claims three times the maximum personal exemption amount available to an employee. So the employer should multiply the maximum personal exemption amount for the taxable year by a factor of three to determine if the Form CT-W4 of an employee must be sent to DRS.

MT

WY

ID

WA

OR

NV

UT

CA

AZ

ND

SD

NE

CO

NM

TX

OK

KS

AR

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VA WV

OH

MI

NY

PA

MD

DE

NJ

CT RI

MA

ME

VT

NH

AK

HI

State requires form to be

submitted to state under certain

conditions

No state income tax

Submitting Form W-4 to State

State does not require form

to be submitted

No state form ©2016 The Payroll Advisor 42

State has no form but requires it

to be submitted

Retaining Form W-4


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Current form until replaced

Expired or replaced forms—minimum four years plus current tax year

Electronic Forms


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May establish system that allows employees to submit their initial form or change existing form electronically

Paper form must be available as well

Paper form can be required for some employees if business reason justifies

Must be able to provide questionable forms to IRS electronically

Tech Specs for Electronic Forms


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Electronic version must contain exact same info as the paper version-no exceptions

Must be PIN or verified system

Lock-in letter compliance must be available

Perjury statement must be there

Employees must understand that it is signed under penalty of perjury just like the paper form

Tech Spec Continued


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Electronic signature required

Must be able to print hard copy

All other regulations apply the same as paper form

Practical Point: Good to have a system that requires employee to acknowledge perjury statement in order to submit as a separate step

States and Electronic Submission


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With the following exceptions the majority of states either permit electronic submission or have no provision to permit or prevent electronic submission

Alabama: says the form must be signed

Georgia: Department of Revenue letter dated June 26, 2013 states NO but no provisions in the code

States and Electronic Submission


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Massachusetts: Letter from Maryland Revenue Administration Division dated August 8, 2013 says no but no provisions in code

Pennsylvania—no

Form W-4 Nonresident Aliens


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Cannot claim exempt

Request only single regardless of marital status

Claim only one allowance

If from Canada, Mexico or Korea may claim more than one allowance

Write “nonresident alien” or “NRA” above dotted line on line 6 of form

Electronic version must provide this field

Form W-4 Nonresident Aliens


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May request additional withholding at their option

Form 8233, Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual:

If claiming a tax treaty exemption from withholding employee must submit Form 8233 instead of Form W-4

Put nonresident alien or

NRA here

Add Nonresident Alien or NRA


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Are There Any Questions?


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by February 25th

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Watch from anywhere, at anytime, at no cost to you!

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Form W-4 for 2016: Best Practices and Compliance Requirements · Form W-4 for 2016: Best Practices and Compliance Requirements Presented on Monday, January 25, 2016 ... 12 -4 ©2016