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What to Know About Withholding Payroll Taxes
What to Know About Withholding Payroll Taxes
The IRS takes W-4s seriously, and so should you.

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.

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