Q: Should our church ask each employee to fill out a new Form W-4 each year? If so, why?
A: The W-4 form is used by employees to report withholding allowances. This information will determine how much income tax the church withholds from the wages of a nonminister employee. The important point is this—W-4 forms often become obsolete because of changes in an employee's circumstances, but the employee fails to submit a new form to the church. This can result in withholding that is significantly above or below the actual tax liability.
Here are some reasons why an employee's W-4 may be inaccurate— the birth of a new child, a pay raise, a divorce, or significant medical expenses. These same considerations apply to ministers who have elected "voluntary withholding" of their taxes. Also, note that the tax cuts passed by Congress in recent years have reduced taxes for most Americans, and this is another reason why church employees should periodically review their W-4 form.