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IRS Eliminates”Questionable” W-4 Form Requirement for Employers

by | May 6, 2005 | Uncategorized

Good News: IRS Eliminates”Questionable” W-4 Form Requirement for Employers

New federal payroll tax rules eliminate the requirement for employers to automatically forward to the IRS copies of all employee W-4 forms, Employee’s Withholding Allowance Certificate, that the IRS considered to be problematic. Previously, the IRS wanted to collect these W-4 Forms and review them to see if the employees in question were trying to dodge their federal income tax responsibilities.

Specifically, the former rules required employers to send the IRS a copy of each employee Form W?4 that claimed: 1. More than 10 withholding exemptions or 2. Complete exemption from federal income tax withholding when the employer reasonably expected the employee’s wages from that source to be $200 or more per week. As of April 14, 2005, these old “automatic-copies-to-the-IRS” rules no longer apply. They won’t be missed by employers. Under the new rules, an employer is only required to submit copies of Forms W?4 to the IRS when specifically told to do so in a written notice or in published guidance that applies to all employers. (Temporary Regulations 31.3402(f)(2)?1T and 31.3402(f)(5)?1T)

New Procedures Leave Employers Out Of The Loop
The IRS has developed new procedures that use information already reported on employee Forms W?2 to identify individuals who are likely to be out of compliance with the federal income tax withholding rules. If an employee is thought to have a serious under?withholding problem, the IRS will notify the employer to withhold federal income tax from that employee’s wages at an appropriate rate. (IRS Information Release IR 2005?45)

As before, however, the IRS still has the power to issue a written notice to an employer that requires submission of copies of Forms W?4 for specified employees. Also, the IRS can still develop specific criteria for identifying Forms W?4 that must be submitted, and this can be done either via a written notice to a specific employer or by published guidance that applies to all employers. If the IRS determines that a specific employee cannot claim more than a certain number of withholding exemptions or should not be allowed to be completely exempt from withholding, the employee (not the employer) must deal directly with the IRS by supplying a new W-4 and a written statement that supports his or her claims. The employer is out of the loop. The employee generally has 45 days to resolve the issue with the IRS before the employer is required to implement withholding changes.