Form W-4: Follow Rules to Avoid Penalties

February 3, 2015

Be careful when filling out your W-4 form.

The Internal Revenue Service requires that employees fill out a Form W-4 on or before the first day of employment. The W-4 form determines how much federal income tax an employer will withhold from an employee’s wages. The information on the W-4 is used when calculating the employee’s first payroll check from the employer.

But use caution. There is a $500 civil penalty for employees claiming excess withholding allowances on Form W-4. Criminal penalties can apply when an individual willfully supplies false withholding information or fails to supply withholding information.

Employees are entitled to claim dependency exemptions for themselves and for each of their dependents, including their spouse. Employees who can be claimed as a dependent on someone else’s tax return may not claim a withholding exemption for themselves.

Employees with more than one job may not claim an exemption that is currently in effect with another employer. So, for example, if you are a single person with no dependents and you have two jobs, you would be allowed to claim one exemption on your W-4 form for one of the jobs. Then you would have to claim zero dependents on the W-4 form for the second job.

These rules do not apply if the wages from the second job are $1,500 or less.

If an employee does not fill out a W-4 form, the withholding must be computed as if the employee were single and claiming no other exemptions.

Employees who certify to their employer that they had no income tax liability for the preceding tax year, and don’t anticipate any tax liability for the current year, may claim to be exempt. No federal income tax will be withheld from their wages. They should fill out and file a W-4 form with the employer each year that they are in this situation.