American Payroll Association (APA) Basic Guide to Payroll, 2013 Edition
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The IRS has issued final regulations on Form W-4, Employee's Withholding Allowance Certificate. Some modifications, explained below, were made to the proposed and temporary regulations.
Form W-4 submission
The final regulations do not require the routine submission of Forms W-4, but permit the IRS to require submission of Forms W-4 under specific criteria either by written notice or by future published guidance. The final regulations do not change an employee’s obligation to provide an accurate Form W-4 to an employer and to satisfy his or her tax liability on a timely basis. Employees may be subject to penalties if they claim excessive withholding exemptions on Forms W-4 or fail to file their tax returns and pay their full tax liabilities on a timely basis.
Notice on maximum exemptions
The IRS may issue a notice to an employer specifying the maximum number of withholding exemptions permitted for a specific employee. The IRS will send the notice both to the employer (with a copy for the employee) and to the employee directly. The final regulations provide that the earliest the notice may be effective is 45 calendar days after the date of the notice. However, the notice may specify a later effective date. If the IRS is unable to determine a last known address for the employee, the IRS will use other available information as appropriate to provide the notice to the employee.
The notice to an employer specifying the maximum withholding exemptions permitted for a specific employee will also specify the marital status for purposes of calculating the required withholding under the notice. The employer must use the maximum number of withholding exemptions permitted and marital status specified in the notice for calculating income tax withholding, unless a new withholding exemption certificate is submitted by the employee that must be honored under these final regulations.
If, at any time, the employee furnishes a withholding exemption certificate that claims a marital status, a number of withholding exemptions, and any additional withholding that results in more withholding than would result from applying the marital status and number of withholding exemptions permitted in the notice, the employer must withhold tax based on that certificate.
Notice to employees
An employer may furnish the copy of the IRS notice to the employee within the 10 required business days using any reasonable business practice.
Terminated, rehired, and seasonal employees
An employer is not required to furnish the IRS employee notice to an employee if the employee is no longer employed. The final regulations clarify that the determination of whether the employee is employed is made as of the date of the notice, and is based on all the facts and circumstances, including whether the employer has treated the employment relationship as terminated for other purposes. The final regulations also specifically state that an employee who is not currently performing services is nevertheless employed for purposes of this rule if on the date of the notice:
Employers may not accept a substitute form developed by an employee, and the employee submitting such form will be treated as failing to furnish a withholding exemption certificate.
The regulations are effective July 13, 2007, and are generally applicable on April 14, 2005, the date the temporary regulations were published in the Federal Register. However, the following provisions apply on October 11, 2007: (a) the provision specifying when an employee who is not currently performing services is employed for purposes of the requirements to furnish the employee notice and withhold based on the notice, (b) the provision requiring the employer to withhold based on the notice if a terminated employment relationship is resumed within 12 months, and (c) the provision requiring employers to refuse to accept substitute withholding exemption certificates developed by employees. Taxpayers may rely on such provisions for notices issued prior to such date. (TD 9337, July 12, 2007.)
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