When you hire an employee, you must have the employee complete a Form W-4 (Withholding Allowance Certificate). Form W-4 reports the employee's marital status, withholding allowances, and any additional amount to use in withholding federal income taxes from the employees' pay. If an employee fails to provide the employer with a properly completed Form W-4, the employer is required to withhold federal income taxes from the employee's wages as if he or she were single and claiming no withholding allowances.
If an employee qualifies, Form W-4 (lines 1-4 and 7) is also used by the employee to inform the employer not to deduct any federal income taxes from his or her wages.
To qualify for exempt status, the employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year. However, if the employee can be claimed as a dependent on a parent's or another person's tax return, additional limitations may apply.
A Form W-4 claiming exemption from withholding is valid for only one calendar year. To continue to be exempt from with- holding in the next year, an employee must complete a new Form W-4 claiming exempt status by February 15 of that year. If the employee does not provide the employer with a new Form W-4, then the employer must withhold tax as if he or she is single, with no withholding allowances. However, if you have an earlier Form W-4 (not claiming exempt status) for this employee that is valid, withhold as you did before.
Any unauthorized change or addition to Form W-4 makes it invalid. This includes taking out any language by which the employee certifies that the form is correct. A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way that it is false. When you get an invalid Form W-4, do not use it to determine Federal income tax withholding. Tell the employee that it is invalid and ask for another one. If the employee does not give you a valid one, withhold taxes as if the employee were single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this employee that is valid, withhold as you did before.
Some churches have employed persons who claim to be exempt from tax withholding based on one or more "tax protester" grounds, including the following:
- Payment of tax is voluntary.
- Wages, tips, and other compensation received for personal services are not income.
- Only foreign-source income is taxable.