If an employee qualifies, Internal Revenue Service (IRS) Form W-4, Employee’s Withholding Allowance Certificate, is used by the employee to tell their employer not to deduct any federal income tax from his or her wages. To qualify for this exempt status, the employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year. However, if the employee can be claimed as a dependent on a parent's or another person's tax return, additional limitations may apply. See the instructions for Form W-4.
Impact on Employers
A Form W-4 claiming exemption from withholding is valid for only one calendar year. To continue to be exempt from withholding in the next year, an employee must give their employer a new Form W-4 claiming exempt status by February 15 of the next calendar year. If February 15 falls on a Saturday or Sunday, the Form is due the next business day following. If the employee does not give the employer a new Form W-4, employers must withhold tax as if he or she is single, with no withholding allowances. However, if there is an earlier Form W-4 (not claiming exempt status) for this employee that is valid, withhold according to that Form W-4.
The 2016 Forms W-4 with exemption from withholding will expire on February 15, 2017. If you have not received a 2017 Form W-4 from your employees claiming exemption from withholding, please proceed in making the necessary changes. A sample template has been attached to assist you in communicating with your employees.
Employees should refer to IRS Publication 505, Tax Withholding and Estimated Tax, for assistance in completing their Form W-4 or consult with their personal tax professional. For a copy of Publication 505, please click here.
Invalid Form W-4
Any unauthorized change or addition to Form W-4 makes it invalid. This includes taking out any language by which the employee certifies that the form is correct, material defacing of the form, or any writing on the form other than the entries requested. A Form W-4 is also invalid if, by the date an employee submits it, he or she indicates in any way that it is false. When you receive an invalid Form W-4, do not use it to determine federal income tax withholding. Tell the employee that it is invalid and ask for another one. If the employee does not give you a valid one, withhold taxes as if the employee is single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this employee that is valid, withhold as you did before.
ADP is committed to helping you meet your compliance challenges with ease. For additional information about this or any other compliance issue, please contact your ADP Workforce Now® Comprehensive Services Team