The Employee's Withholding Certificate that new employees complete to tell their employer how much federal income tax to withhold from each paycheck, based on filing status, dependents, other income, and deductions.
Why Form W-4 matters for employers
Form W-4 is the mechanism through which employees control their federal income tax withholding. Every new employee must complete a W-4 before their first paycheck, and employers must use the information on the most recent W-4 on file to calculate withholding. The form was significantly redesigned in 2020. The old W-4 used the concept of allowances, where each allowance reduced withholding by a standard amount. The redesigned W-4 eliminated allowances and replaced them with direct inputs: the employee specifies their filing status, indicates whether to adjust for multiple jobs or a working spouse, adds the dollar value of qualifying dependents and deductions, and can request additional flat withholding per period. Employees hired before 2020 who have not submitted a new W-4 continue to have withholding calculated using the old allowance-based method, which the IRS still supports through separate withholding tables. Employers cannot require existing employees to complete a new W-4 unless they wish to change their withholding. If an employee does not submit a W-4, the employer must withhold as if the employee is single with no adjustments, which typically results in the highest withholding for that filing status. Employees who are exempt from withholding may write Exempt on the W-4 and receive no federal income tax withholding. Exempt status must be renewed annually: a new exempt claim expires February 15 of the following year. Employers must send a copy of W-4s to the IRS when the IRS specifically requests them, but do not file W-4s routinely.
How BEG handles Form W-4 for clients
BEG Managed Payroll collects W-4 information through the new hire onboarding process, programs the withholding correctly into the payroll system, and updates withholding when employees submit a new W-4. BEG applies the correct withholding method for employees on pre-2020 W-4s versus those on the redesigned form. W-4 management is included in BEG Managed Payroll at $25-$45 per employee per month. Learn about BEG Managed Payroll.
Frequently asked questions
What happens if an employee does not submit a W-4?
The employer must withhold federal income tax as if the employee is single with no other adjustments on the 2020 and later W-4. This typically results in the highest withholding for that pay level. Employees have the right to choose their withholding amount by completing the form.
How often do employees need to update their W-4?
Employees should update their W-4 when their personal situation changes significantly, such as marriage, divorce, having a child, or a major income change. Exempt status must be renewed annually by February 15. Otherwise there is no required frequency.
Can an employee claim exempt from federal withholding?
Yes, if they had no federal income tax liability in the prior year and expect none in the current year. The employee writes Exempt in the designated space on the W-4. Exempt status expires February 15 of the following year, and the employee must renew the claim annually to continue receiving zero withholding.
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About the author
Anthony Moretti is VP of Sales at Business Executive Group, where he builds BEG's managed payroll and HR service verticals for employers across Dallas-Fort Worth and nationwide. He writes the BEG Payroll Glossary to give employers plain-English answers on payroll and compliance.
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