In this instructional video, the presenter explains that employers must withhold federal income tax based on the employee’s current W‑4, even if the form is outdated. Life events such as marriage, divorce, a new child, or a side gig can make a W‑4 inaccurate, leading to over‑ or under‑withholding. The speaker clarifies that while employers cannot force employees to update their W‑4, they are the first point of contact when withholding errors arise. Key legal points include: (1) employers must follow the W‑4 as is; (2) exempt status expires each year, and if not renewed by February 15 the employer must revert to default withholding; (3) the IRS can issue a lock‑in letter that obligates the employer to withhold at a specific rate regardless of the employee’s form. The video offers practical steps for employers: audit W‑4s older than two years and send reminders, embed W‑4 review prompts in open enrollment or January HR communications, explain W‑4 responsibilities during onboarding and document the conversation, and seek assistance from Guru for lock‑in letters. The presenter ends with a call to like, subscribe, and comment.
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There's a form sitting in your employee's profile right now that's very likely out of date. When it ends up causing an issue at tax time, you're going to be the first call that they make. Form W-4 is the form that employees use to indicate how much to withhold for federal income tax. Now here's the problem: life changes. Marriage, divorce, having a kid, spouse gets a new job, getting a side gig— all of these things affect how much should be withheld for federal income tax. When the W-4 doesn't reflect reality, employees either end up over-withholding, essentially giving the government an interest-free loan, or under-withholding, which generates a bill in April come tax time. Usually they're not very happy about that latter. As the employer, you're required to withhold based on whatever the current W-4 says. You're not required to prompt them to update it. You can't require anybody to update it, but you are the one running payroll, and when the withholding is wrong, you're going to be the first call that they make. What can you do about this, or what should you know? First, you can only withhold what the W-4 tells you to. If an employee's W-4 is out of date and they end up owing taxes, that's not a payroll error, but they will think it is one. Second, certain life events should trigger a proactive notification or a reminder from you. You don't have to require an update, but a well-timed nudge goes a long way in reducing friction at the end of the year. Third, if an employee claims exempt status, that W-4 expires every single year. So exempt means zero withholding at all. If they claim it in January and you don't get a new one by February 15th, you're required to revert them back to the default withholding rate. That's on you to track, not them. Fourth, the IRS can issue a lock-in letter, which essentially requires you to withhold at a specific rate for that employee regardless of what the employee's W-4 form says. If that happens, you're legally obligated to follow the IRS instruction, not the employee's form. Here's a couple of additional things that you can do to help safeguard yourself from any potential issues down the road. Pull a list of employees whose W-4 is over 2 years old. Flag them for a voluntary update reminder. You don't have to force anybody to update anything, but just letting them know that it's been 2 years since they last completed one goes a long way. Add a W-4 review prompt in your open enrollment or January HR communications. Make it a routine. You can also make sure your onboarding process explains to the new hire that the W-4 is their responsibility and to keep it current. Document that conversation. Lastly, if you've received or think you are going to receive an IRS lock-in letter and you're not quite sure how to handle it, reach out to us at Guru. That's a situation you really don't want to navigate alone. That's your W-4 review, what it does, why stale forms create headaches for the employer, and what to put on your calendar today. If this was helpful, like and subscribe, and feel free to drop any questions in the comments below. We'll see you in the next one.
