Attention business owners and payroll supervisors: If anyone on your company payroll claimed an exemption from federal withholding last year, let them know they’ll need to fill out a new W-4 form by February 15 to continue the exemption. On February 16, 2011, all W-4 forms from the prior year marked “exempt” will expire.
Here’s some background. The Form W-4 — the Employee’s Withholding Allowance Certificate — is one of the required documents new employees must fill out before you can run payroll for them. On this form, employees can specify an exemption from federal tax withholding if they meet these two conditions: they had no income tax liability for the last year and expect no tax liability this year. They mark this exemption on Line 7 of Form W-4 and certify it with their signature. This exemption is only valid for one year.
If your employees want to continue to be exempt from federal tax withholding, they must fill out a new W-4 form for 2011. Employees cannot be marked as “exempt” in your payroll system after Feb. 16, 2011, without an updated form.
If the employee does not give you a new form by February 16, you must use the last valid W-4 form that had withholding allowances the next time you run payroll for this employee. If you don’t have a prior W-4 form in your payroll records for that employee, you must withhold federal taxes from their payroll as “single” for marital status and “0” for withholding allowances.
If anyone on your payroll completes a new W-4 form to claim the exemption after the Feb. 15 deadline, you can change the employee’s payroll tax settings to reflect the exemption for future payrolls. But do not refund the employee any taxes from when their exempt status was not in place.
For more information on Form W-4, read our previous training article about new hire paperwork in Patriot PAY.