W-4 Compliance Tips!

So, you give your new employee a W-4. What is the first question they ask you? “How do I fill this out?  What is a deduction?” Exactly.  Hopefully, your response is something like this –  “I’m sorry. I can’t advise you on completion of your W-4. If you have questions, you should ask the person who advises you on your annual tax return.”

 I know how hard it is to give such an answer. It’s even harder to tell them to read those awful instructions. But, you have no other choice. In addition to the fact that payroll professionals must not advise on form W-4, here are a few more tips for conducting an internal audit to be sure your W-4 processes are compliant with IRS regulations.

 1.            Allow no errors, strike-outs or corrections on the W-4. If you find that you have forms on file with such errors, call the employee in to complete a new form. But, don’t shred the old one!

 2.            Be sure you monitor the retention window for the W-4. This form has the easiest to remember. Keep the W-4 for 4 years – from the date it was last used on a report, such as the 941.

 3.            An employee may give you a new W-4 at any time a change is deemed necessary. As a payroll professional, it is not your job to question the decision of the employee.

 4.            Once the new W-4 is submitted, you will have up to 30 days to implement the change. But, be careful. A policy must be set and equally enforced for all employees.

 5.            Finally, if an employee claims exempt status, a new W-4 must be submitted yearly, no later than February 15th. If not, the withholding status must revert back to single – zero or the most recent other valid W-4 still on file for the employee.

 6.            Store your W-4s in a locked file cabinet or if electronically stored, be sure all files are secured and encrypted.

 7.            Create a checklist with these important tips and any others you may want to add specifically for your organization.  Every year, audit your W-4s to be sure they are fully compliant. Also, review your policies and staff training procedures to be certain that your entire payroll department is compliant with IRS guidelines.

 W-4 compliance isn’t difficult. With a little fore-thought, some good policies and procedures, a careful staff training program, and a yearly internal audit your payroll department will be on its A game with no concern of any unwelcome surprises turning up in a future audit.

 Until next time, Keep Calm and Employ On!

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