Onboarding new employees is an exciting time, but there are important compliance requirements to handle as well. The first order of business should be having your new hire complete a Form W-4.
What Is Form W-4 And Why Is It Important?
Form W-4 allows employees to determine how much federal income tax should be withheld from their paycheck each pay period. This ensures they don’t receive a huge tax bill when filing their annual return. The Internal Revenue Service (IRS) calculates how much tax to withhold based on the withholding information each employee indicates on their Form W-4. The IRS also considers whether employees are filing jointly or independently.
The amount of withholding depends on the following factors:
- Filing status (single, married, or head of household)
- Number of dependents
- Other jobs or income sources
- Anticipated deductions and credits
Employees have access to helpful tools, such as the IRS tax withholding estimator. This tool can assist them in determining the proper withholding allowances to claim on their Form W-4.
Employer Responsibilities
As the business owner, you cannot fill out Form W-4 for your employees or influence how they complete it. If an employee doesn’t submit this form, the IRS requires you to withhold taxes from them at the highest rate (which your employees won’t be happy about). However, you do need to do the following:
- Provide your business’s Employer Identification Number (EIN)
- Note the employee’s hire date
- Enter your company name and address
- Calculate the withholding amount based on the employee’s W-4 inputs
It’s a good practice to remind employees to update their Form W-4 anytime they have a major life change, such as getting married, having a child, or gaining another income source. This ensures proper withholding throughout the year.
If your employee didn’t claim all the allowances they were entitled to, their employer cannot repay the tax previously withheld, but the employer should ensure the employee fills out a revised Form W-4 to correct the amount moving forward.
Let GMS Handle Form W-4 Compliance
Keeping up with Form W-4 rules and properly withholding taxes for all employees can be an administrative burden. That’s where GMS comes in. As a professional employer organization (PEO), we take on full responsibility for payroll tax compliance, including:
- Collecting and processing Form W-4’s
- Calculating precise withholding amounts
- Filing quarterly and annual payroll tax returns
- Remaining up to date on changing regulations
This allows your team to focus on your core business operations while resting assured your payroll taxes are being managed accurately and on time. At GMS, we understand the challenges of remaining payroll tax compliant, especially when managing Form W-4s across a workforce. Our PEO services provide a comprehensive solution, ensuring proper withholdings and filings so you avoid penalties and audits. Contact us today to learn how our services can save you time and money while reducing risk!