FEDERAL & STATE W - 4 RULES

[Lee B]

Federal and State W-4 Rules for 2015 | CPA Practice Advisor

 

Let's take a look at W-4s. As we all know, this is the document that employees turn in to an employer to calculate federal and (sometimes) state withholdings.

There was once a time when - if the employee turned in a W-4 with more than 10 exemptions - the W-4 needed to be sent to the federal government for verification. This requirement no longer exists, except for California state withholdings.

Elsewhere, a lock-in letter replaced this requirement. If an employer receives a lock-in letter from the IRS, the employer is then required to use the IRS calculation of exemptions instead of the employee W-4. The rare exception is if an employee submits a new W-4 with more taxes that are calculated than the lock-in letter-again, this is very rare. A lock-in letter trumps a W-4 and must be put in place by the employer no more than 60 days after it is received.

"How many times can an employee change their W-4?" is a common question. Actually, there is no minimum or maximum number of times. However, an employer has up to 30 days to implement the change. Another common question is "Does a W-4 expire?" There is no expiration date for W-4s so you could be correct to use a 1984 (or any other year) W-4, if no change has ever been received from the employee.

Let's talk about what constitutes a legal and acceptable W-4. The form can only contain the employee demographic information, marital status, and the number of exemptions, with an area for additional dollar amount of withholding and a box for exempt. Any alteration of this, like set percentage or set dollar amount of withholding, voids the W-4. If the employer does not have a valid W-4 for the employee, the employer is required to use either Single 0 or the last valid W-4 they have on file for the employee. Also, make sure you are using the correct year W-4 when the employee submits it to the employer.

 

Now let's look at the states. The W-4 is a federal document, and several states - but not all - accept the federal W-4. Below is a chart of states and what they accept. If the state has their own withholding form, then the federal W-4 is not allowed for state calculation of withholdings. You'll notice that Pennsylvania does not have a state W-4-this is because the rate is a set percentage.

Legend

*CA - 10 or more exemptions must be faxed or mailed to state

State	Form
AL	A-4
AK	No WH
AZ	A-4
AR	AR4EC
CA	DE-4*
CO	FED W-4
CT	CT-2-4
DE	FED W-4
DC	D-4
FL	NO W/H
GA	G-4
HI	HW-4
ID	FED W-4
IL	IL-W4
IN	WH-4
IA	IA-W-4
KS	K-4
KY	K-4
LA	L-4
ME	W-4ME
MD	MW-507
MA	M-4
MI	MI-W4
MN	W-4MN
MS	89-350

State	Form
MO	MO W-4
MT	FED W-4
NE	FED W-4
NV	N/A
NJ	NJ W-4
NM	FED W-4
NY	IT-2014
NC	NC_4
ND	FED W-4
OH	IT-4
OK	FED W-4
OR	FED W-4
PA	NONE
PR	.499r-4.1
RI	FED W-4
SC	FED W-4
TN	N/A
TX	N/A
UT	FED W-4
VT	W-4VT
VA	VA-4
WA	N/A
WV	WV/IT_104
WI	WT-4
WY	N/A

Knowing the federal and state W-4 rules will assist you in correct calculations of withholdings and can assist employees with the requirements.

[Gail in Virginia]

It amazes me how often employers who hire high school and college students advise them to claim Single and 0 for the w-4 instead of exempt, or instead of suggesting that they take the form to their parent(s).  I hate having to file a tax return for a kid that only has to file to get back $10 or $15 that was withheld from his or her first job.  It was a big enough shock to them to lose all that money to social security withholding. 

[kcjenkins]

While I agree for the small short-term job with minimum pay, those kids seldom trigger any withholding anyway.  But the kid who has a regular job, even at minimum wage, for 20 hrs a week, may indeed owe a little, at yr end, if his parents are still claiming him.  I love it when his boss advises 'single 0'.  I would so much rather do him/her a free short form to get the refund, than have the kid file and claim himself, just because not claiming himself means he owes $15, and he's not thinking about the hundreds of dollars that will cost his parents.  Just seen that way too many times.  

[Jack from Ohio]

While I agree for the small short-term job with minimum pay, those kids seldom trigger any withholding anyway.  But the kid who has a regular job, even at minimum wage, for 20 hrs a week, may indeed owe a little, at yr end, if his parents are still claiming him.  I love it when his boss advises 'single 0'.  I would so much rather do him/her a free short form to get the refund, than have the kid file and claim himself, just because not claiming himself means he owes $15, and he's not thinking about the hundreds of dollars that will cost his parents.  Just seen that way too many times.  

Very few kids that work a part time job earn over $6,100.  I always advise part time kids to claim exempt.  Only a handful in 18 years ended up owing, and then it was less than $50.  If the kids does not file, he cannot mess it up.  The problems arise from the kid with $4,000 in wages and $400 in withholdings and wants to file immediately to get that refund and claims him/herself.  I fix approx. 35-50 of those every season.

[Medlin]

A W4 can expire.  A W4 properly accepted as exempt expires at the end of the year.  This is the ONLY case where I will ask the employee for a new W4, since without one, you have to go from exempt to S-0.

[Medlin Software, Dennis]

If a state has a separate form, then I require it, or use S-0 for whichever form I did not get.  Solves any issues where one may get a form and have to decide whether or not the employee meant federal or state.  I do not want to make tax decisions for employees!

I fully use the 30 day allowance when needed.  For those that have a normal reason for change, I simply delay to the next check.  For those that change their form often, I wait until the last check within the 30 day window.  So first change of the year, changes on next check, additional changes in the same year may take longer.

[Abby Normal]

I wish they would change the W4 to give you an optional % to have withheld. Yes all the software would have to be updated to do this, but it would make life so much simpler. MD has sort of done this, although they still make allowance for exemptions. Everyone gets withheld at the highest bracket rate after subtracting exemptions. I'm sure MD has improved its cash flow and spent less resources trying to collect balances due.

[Terry D EA]

I gotta agree with KC here. I too have seen the situation she spoke of too many times to mention. I usually do the kids return for free as well. Normally takes not time at all and usually gains me a client when they do become of age.