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Federal Income Tax Withholding Requirements

Federal Income Tax Withholding Requirements

July 12, 2021
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What is it?

Both you and your employer are subject to requirements concerning income tax withholding. Many of these requirements concern Form W-4, the IRS form that enables employers to determine how much to withhold from your paycheck. The requirements include supplying it, filling it out, and revising it, among other things.

Your requirements as an employee

Information you must include on your Form W-4

Form W-4 asks you for three pieces of information to help your employer determine how much to withhold from your paycheck for income tax:

  • Your marital status
  • The number of withholding allowances you claim
  • Any additional amount you want withheld

Submitting a new Form W-4

You must file a new Form W-4 in two circumstances:

  • When you start a new job
  • When, sometime after submitting an original W-4 to your employer, your marital status changes from married to divorced or the number of withholding allowances you can claim decreases

In the latter situation, you have 10 days to submit a new W-4 after these changes take place.

The following events reduce the number of withholding allowances and, thus, trigger the requirement that you submit a new Form W-4:

  • You have been claiming an allowance for your spouse and either you get divorced or your spouse begins claiming his or her own allowance on a separate W-4
  • You have been claiming an allowance for a dependent but no longer anticipate providing more than half of his or her support for the year
  • You have been claiming allowances for expected deductions but now see that the deductions will be less than expected
  • You have been claiming an allowance for a child but now find that your child will provide more than half of his or her support for the year, or will be:
  1. Age 24 or older by the end of the year, or
  2. Age 19 or older by the end of the year and not a student

If events in the current tax year will reduce your number of withholding allowances for the following tax year, you are required to file a new Form W-4 with your employer by December 1 of the current tax year, at the latest. If such an event occurs in December of the current tax year, you have 10 days to submit a new W-4. Examples of triggering events that could reduce your allowances are the following:

  • You will no longer have child-care expenses, moving expenses, or large medical expenses for which you can claim allowances
  • You will no longer be able to claim an allowance for your spouse because he or she has died (you will also most likely have to change from married to single status)

In addition to the above situations, you always have the option of filing a new Form W-4 when you decide to change your number of withholding allowances.

Claiming withholding allowances when you work two or more jobs

If you work at least two jobs at the same time, you must split your withholding allowances between the W-4 forms you file for each job. You aren't allowed to claim the same allowances with two different employers at the same time. You have the option of either splitting the allowances among your W-4s or claiming all of the allowances on only one W-4.

Avoiding unreasonable or false statements or allowances on a Form W-4

You face a $500 penalty if you make statements or claim withholding allowances that reduce withholding from your paycheck without a reasonable basis at the time you submit your Form W-4. You face a penalty of up to $1,000, imprisonment of up to one year, or both, if you willfully present false or fraudulent information on your W-4 or if you willfully withhold information that would increase withholding from your paycheck.

Making estimated tax payments when you don't have enough tax withheld

You must make estimated tax payments for the current year if the following two conditions apply:

  • You expect to owe at least $1,000 in tax after subtracting for both withholding and tax credits
  • You anticipate your withholding and credits to be less than both:
  1. 90 percent of the tax shown on your current year's return
  2. 100 percent of the tax shown on last year's return, which must cover all 12 months

Technical Note: Farmers and fishermen, for whom at least two-thirds of their gross income in the last year was from farming or fishing, compare their expected withholding and credits to 66.67 percent (not 90 percent) of the anticipated tax for the current year.

Caution: There are special rules for higher income individuals (i.e., taxpayers with adjusted gross income that exceeds $150,000 or $75,000 if married filing separately). Consult IRS Publication 505.

Tip: If all of your current year's income will be subject to withholding, you most likely won't need to make estimated tax payments . Further, if some of your current year's income won't be subject to withholding, you can still avoid the possibility of estimated tax payments by increasing the amount your employer withholds from your paycheck.

Employer requirements

Just as you have requirements to follow concerning federal income tax withholding, so does your employer.

Providing you with a Form W-4

When you begin a new job, your employer must give you a new Form W-4 to fill out. The information you provide will enable your employer to calculate the amount of withholding on your first and subsequent paychecks.

Putting into effect a revised Form W-4

If you later give your employer a new Form W-4 with revised withholding information, your employer must put it into effect no later than the start of the first payroll period ending 30 or more days after you submit it.

Handling your failure to submit a completed Form W-4

If you don't submit a completed Form W-4, your employer must withhold from your pay at the highest rate (i.e., the rate for a single person with zero allowances), regardless of your actual marital status or eligibility for allowances.

Submitting an employer withholding tax return to the IRS

Generally, employers (with the exception of household employers) must file quarterly withholding returns to the IRS on Form 941. The returns are for quarters ending March 31, June 30, September 30, and December 31 and must be filed by April 30, July 31, October 31, and January 31 (of the next year), respectively. They must include copies of W-4 forms for all employees who either claim more than 10 withholding allowances or claim exempt status while earning more than $200 per week.

Eligible small employers may file Form 944 once a year rather than filing Form 941 each quarter. Most employers who file Form 944 will be able to make a single payment with their annual return. Generally, eligible small employers are those with an annual payroll (i.e., Social Security, Medicare, and withheld federal income taxes) tax liability of $1,000 or less. File Form 944 by January 31 for the prior calendar year.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. William DiCristofaro is a registered representative of and offers securities through MML Investors Services, LLC. Member SIPC. Integrity Benefit Partners is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. 200 Clarendon Street, 19th & 25th Floors. Boston, MA 02116. 617-585-4500. CRN202406-291916