2012 form w-4We’ve interrupted our series on the 3 Critical Steps for Creating an Efficient Employment Process to let you know the IRS has released the Form W-4 for 2012.  If you have employees that have gotten married, divorced or had children this year, you’ll want to remind your employees to update their W-4 form so their withholdings are correct.

The IRS regulations require employers to remind their employees to file an amended Form W-4, Employee’s Withholding Allowance Certificate, if their filing status, exemption allowances or exempt status has changed since the last filing of their W-4 form.  This notice must be provided to employees by December 1st each year.  The 2011 Form W-4 is still available if you need it.

Employees claiming “exempt” from withholding in 2011 and who wish to continue their exemption for 2012 must complete a new Form W-4 by February 16, 2012 to maintain their “exempt” status.  An exemption is only good for one year.  If a new W-4 is not received for employees claiming “exempt”, the employer must begin withholding Federal income tax as if they are single, with zero withholding allowances. 

Reasons Employees Need to Change Their Withholdings
During the year, changes in an employee’s marital status, exemptions, adjustments, deductions or credits may occur which will impact what they claim on their tax return.  When these changes occur, employees should provide their employers with a new W-4 form so their withholding status and number of allowances can be changed.  If the changes reduce the number of allowances an employee is allowed to claim or if their marital status changes from married to single, employees must give their employer a new Form W-4 within 10 days of this change.

Generally, employees can submit a new W-4 whenever they wish to change their withholding allowances for any other reason.  Here are some examples of lifestyle changes which could impact withholding allowances:

  • Marriage
  • Divorce
  • Birth or adoption of a child
  • Loss of an exemption
  • Purchase of a new home
  • Retirement
  • Filing chapter 11 bankruptcy

Who is Exempt from Withholding?
If an employee claims exemption from withholding, employers will not withhold Federal income tax from their wages.  The exemption applies only to income tax and not to Social Security or Medicare taxes.

Employees can claim exemption from withholding only if both of the following situations apply:

  • They had a right to a refund of all Federal income tax withheld in the previous tax year because they had no tax liability
  • They expect a refund of all Federal income tax withheld for the current tax year because they expect to have no tax liability

To help employees further decide whether they can claim exemption from withholding, you can direct them to Figure 1-B Exemption From Withholding on Form W-4 on page 11 of the IRS Publication 505 Tax Withholding and Estimated Tax.  This guide walks them through a series of “yes” and “no” questions to help them decide whether they can claim exemption from withholding.

When Will New W-4 Forms Go Into Effect?
If the change to a W-4 form is for the current year, employers must put the new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you receive the revised W-4 from your employee.  If the change is for the next year, the new Form W-4 will not take effect until next year.