The Internal Revenue Service requires taxpayers to pay federal income tax gradually throughout the year. This is done by withholding tax. Employers withhold tax based on the information provided on tax withholding form W-4.
All employees must fill out and submit a Form W-4 to their employers. If Form W-4 remains unfiled, the employer will then withhold tax at the highest single rate. In previously issued Forms W-4, this meant single with no allowances but the 2020’s tax withholding form changed that. Now, this will be single, claiming standard deduction and no adjustments to income.
Employee Not Filing Form W-4
Until the employee fills a Form W-4 and hands out to his or her employer, the employer needs to withhold tax like this. Once the employee submits Form W-4, the new tax withholding will be effective on the next paycheck. During the tax year, employees can fill out and submit as much as Form W-4 they want. But for the most part, the employee’s income will be what determines how much tax will be withheld.
But not filling out a Form W-4 may result in withholding more or less tax than necessary. Although employees will get any amount paid over the tax bill on their tax refunds, withholding more tax than necessary shrinks the cash flow of significantly.
Withholding less tax than needed, on the other hand, will result in owing to the IRS. If the tax payment isn’t made before the April 15 deadline, interest and late fees will be added to what’s owed. For these reasons, filling out the tax withholding form is very important for the employees. Make sure to remind your employees who haven’t submitted a Form W-4 to fill out one.