New regs. on Form W-4 exemptions.

• Author: Garrison, Larry R.

According to News Release IR 2005-45, employers are no longer required to submit copies of Form W-4, Employee's Withholding Allowance Certificate, to the IRS, when an employee earning $200 or more claims more than 10 allowances or a complete exemption from withholding, as was required under previous regulations. The Service hopes the new procedure will enhance compliance and reduce some of the burden on employers.

Form W-4 Rules

Sec. 3402(f)(2)(A) requires employees to furnish their employer with a signed Form W-4 on employment. Form W-4 allows several withholding exemptions, depending on, among other things, marital status; filing status; number of dependents; number of exemptions chimed by the employee's spouse on his or her Form W-4, if married; and estimates of itemized deductions, credits and certain other deductions.

Previous regulations required employers to submit certain employees' Forms W-4 to the IRS on the agency's written request. The Service could then notify the employer to withhold, using a maximum number of exemptions for an employee. Under those regulations, these employees had to furnish the employer with new Forms W4 claiming a number of exemptions, if it was less than that stated in the IRS request. The new number was then used by the employer.

However, if the employee furnished the employer with a new Form W-4 chiming a complete exemption from withholding or more exemptions than stated in the IRS's request, the employee had to submit a written statement to the employer, along with the new Form W-4, stating the reasons for the exemption(s).The employer then forwarded that information to the IRS. The employer could not use the new Form W-4 for withholding purposes until it was approved.

New Regs.

The new temporary and proposed regulations no longer require an employer to submit any Forms W-4 to the Service, unless it receives a written notice requesting Forms W-4 for specific employees (TD 9196, 4/13/05). This change is the result of the IRS's development of a process to use information reported on Form W-2, Wage and Tax Statement. The Service believes that the process will identify...