The Internal Revenue Service (IRS) has recently announced finalization of its regulations concerning employer reporting of certain Form W-4s, Employee’s Withholding Allowance Certificate, received from their employees. These changes were first noted in Postal Bulletin 22160 (8-4-05, page 34). However, since there have been some addendums to the regulations as first posted in 2005, the article is reprinted with minor edits below. The addendums are described in the last paragraph of this article.
Prior to mid-2005, Section 31.3402(f)(2)-1(a-g) of the Internal Revenue Code required every employer to submit a copy of any W-4 on which an employee had claimed more than 10 withholding exemptions. With the change in regulation, employers (including the Postal Service™) are no longer required to send these W-4s to the IRS; however, employers must still submit a copy of any W-4 if directed to do so by a written notice from the IRS.
Unless the Postal Service receives written instructions from the IRS, withholdings will be based upon the information provided on the W-4 completed by each employee. However, in instances when the IRS has provided a written notice to the Postal Service, withholdings will be based upon both the number of allowances and the marital status as specified in the IRS notice. All specifications provided by the IRS concerning employee withholding remain in effect until a new IRS notice supersedes the original instructions. Both the IRS and the Postal Service will now send a copy of all notifications directly to the employee’s address of record.
Following receipt of these IRS instructions, any employee wishing to claim either complete exemption or more withholding exemptions than stipulated by the IRS must submit a written request directly to the IRS. The updated regulations have removed the option of having an employee send a request to an employer for subsequent forwarding to the IRS. The Postal Service will not act upon or forward to the IRS any new W-4s or subsidiary materials from impacted employees. Employees may still change their withholding exemptions to less than the maximum number specified in the IRS notice. For example, if the IRS letter specifies “Single, 2” and an employee wishes to voluntarily change to “Single, 1” or “Single, 0”, the employee will be able to reduce their number of withholdings.
The final regulations note that employees may be subject to penalties if they either claim excessive withholding exemptions on a W-4, or if they fail to file their tax returns and pay their full tax liabilities on a timely basis. Additionally, employers are now prohibited from accepting substitute W-4s from an employee. Any employee who attempts to submit a substitute form must be treated as having failed to furnish a form. In such an instance, the employer is required to withhold at the “Single, 0” rate. Also, employers are not required to furnish/forward the IRS information to anyone who has terminated their employment.
— Payroll,
Finance, 8-16-07
