The W-4 form is the Employee's Withholding Certificate that tells you how much federal income tax to withhold from an employee's paycheck. Every employee completes one when they're hired, and you use the information to calculate withholding each pay period. For shift-based businesses processing payroll for dozens of employees, understanding the W-4 prevents tax problems for both you and your workers.
What the W-4 Does
The W-4 doesn't determine how much tax an employee owes. It determines how much you withhold from their paychecks toward their annual tax bill. At tax time, employees settle up: if you withheld too much, they get a refund. If you withheld too little, they owe money.
The goal: Withhold approximately the right amount so employees neither owe a large bill at tax time nor give the IRS an interest-free loan all year.
According to the IRS, the W-4 underwent major redesign in 2020 to improve accuracy and simplify the form. The new version looks different from old W-4s but serves the same purpose.
When Employees Complete a W-4
New Hires
Every new employee must complete a W-4 on or before their first day of work for pay. This happens during onboarding alongside the I-9 and other paperwork.
No W-4, no paycheck. You cannot process payroll without knowing how much federal tax to withhold.
Life Changes
Employees should submit a new W-4 when:
- They get married or divorced
- They have a child
- They buy a house (mortgage interest changes deductions)
- They start or end a second job
- Their spouse starts or stops working
- They had a large refund or tax bill last year
Each life change affects their tax situation and optimal withholding amount.
Anytime They Want
Employees can submit a new W-4 whenever they choose. Maybe they want a bigger refund next year, or they'd rather have more money in each paycheck. That's their right.
Your obligation: Implement the new W-4 by the start of the first payroll period ending 30 days or more after you receive it.
Your server submits a new W-4 on January 15. Your payroll periods end every other Friday. The first period ending 30+ days later is February 12. Implement the new W-4 for that pay period.
Understanding the New W-4 (2020 and Later)
The redesigned W-4 eliminated "allowances" (the old system where employees claimed 0, 1, 2, etc.). The new version uses five steps, though only Steps 1 and 5 are required.
Step 1: Personal Information (Required)
Basic information:
- Name
- Social Security number
- Address
- Filing status (Single/Married filing separately, Married filing jointly, or Head of household)
Step 2: Multiple Jobs or Spouse Works (Optional)
Employees complete this if:
- They work multiple jobs
- They're married filing jointly and spouse works
- Both situations apply
This step increases withholding to account for income from multiple sources.
Step 3: Claim Dependents (Optional)
Employees claim qualifying children and dependents here. More dependents = less withholding.
Your line cook has two young children. He completes Step 3 to reduce withholding since he'll qualify for child tax credits.
Step 4: Other Adjustments (Optional)
Employees can:
- Increase withholding (if they have other income not subject to withholding)
- Decrease withholding (if they have deductions beyond the standard deduction)
- Request additional withholding (a flat dollar amount per paycheck)
Step 5: Signature (Required)
Employee signs and dates, certifying the information is correct.
What You Do With the W-4
Calculate Withholding
Use the information from the W-4 plus IRS withholding tables to calculate how much federal income tax to withhold each pay period.
Most businesses use payroll software that automatically calculates withholding based on:
- Employee's gross pay for the period
- Pay frequency (weekly, biweekly, etc.)
- Filing status from W-4
- Additional amounts from Steps 2-4
Your responsibility: Enter W-4 information accurately into your payroll system. Errors mean incorrect withholding.
Report Withholding
The federal income tax you withhold appears on:
Remit Taxes
You're required to deposit withheld federal income tax (plus Social Security and Medicare taxes) regularly. The IRS specifies deposit schedules based on your total tax liability.
What You Cannot Do With W-4s
Cannot refuse a W-4: If an employee submits a valid W-4, you must honor it. You can't say "this withholding is too low, I won't accept it."
Cannot advise on tax strategy: You can explain how to fill out the form, but you cannot tell employees what to claim. "You should claim single to have more withheld" is tax advice you're not qualified to give.
Cannot alter W-4s: If an employee writes $50 extra withholding in Step 4(c), that's what you withhold. Don't change it because you think it's wrong.
Exception - IRS Lock-In Letter: If the IRS determines an employee is under-withholding, they may send you a "lock-in letter" specifying minimum withholding. You must comply with the lock-in letter, not the employee's W-4.
Employees Who Don't Submit a W-4
New employees without W-4: Treat them as single filer with no adjustments (the highest withholding rate). This protects them from under-withholding.
Existing employees with old W-4s: If an employee was hired before 2020 and never submitted a new W-4, continue using their existing W-4. Don't force them to complete the new version unless they make changes.
According to the IRS, employees with W-4s from before 2020 can keep using them indefinitely. The new form is only required for new hires or employees making changes.
Where to Store W-4s
W-4 forms are confidential tax documents. Store them in employee files with restricted access.
Who can access: HR, payroll personnel, the employee themselves, and IRS upon request.
Who cannot access: Managers without legitimate payroll responsibilities, coworkers, anyone without business need.
Your retail store manager shouldn't be able to see employee W-4s just because she supervises them.
Retention Requirements
Keep W-4s for at least four years after the due date of the tax return for which they're relevant, or four years after the tax is paid, whichever is later.
Practical approach: Keep current W-4s in active files. When an employee separates, keep their final W-4 in their personnel file for four years after separation.
The IRS can audit employment taxes going back several years, so keeping W-4s proves you withheld based on employee instructions.
Common W-4 Mistakes
Mistake: Not Collecting W-4s from New Hires
Every new hire needs a W-4. "I'll get it later" results in processing payroll without knowing proper withholding.
Fix: Make W-4 completion mandatory on day one alongside the I-9.
Mistake: Using Outdated Forms
The IRS updates the W-4 periodically. Using a 2019 version in 2025 causes problems.
Fix: Download the current W-4 from the IRS website before each new hire starts.
Mistake: Entering W-4 Data Incorrectly
Your employee claims Married Filing Jointly, but you enter Single in payroll. She's over-withheld all year.
Fix: Double-check data entry. Have employees review their first pay stub to confirm withholding looks right.
Mistake: Not Implementing Updated W-4s
Employee submits a new W-4 in January, but you keep using the old one all year.
Fix: Create a process for receiving, reviewing, and implementing W-4 changes within required timeframes.
Mistake: Providing Tax Advice
Your warehouse worker asks whether he should claim 0 or 2 dependents. You give your opinion.
Fix: Direct employees to the IRS withholding calculator or a tax professional. Don't advise.
Mistake: Allowing Blank W-4s
Employee signs a blank W-4 and tells you to "fill it out however." That's not valid.
Fix: Require employees to complete all required sections themselves. You can assist with understanding the form but cannot complete it for them.
State W-4 Equivalents
Many states have their own withholding certificates separate from the federal W-4:
- California: Form DE 4
- New York: Form IT-2104
- Pennsylvania: Form REV-419
If your state has income tax, check whether a state withholding form is required in addition to the federal W-4. The IRS provides links to state tax agencies.
Technology Solutions
Manual W-4 management creates errors. Employees submit forms, you manually enter data, mistakes happen, withholding is wrong.
Integrated payroll and HR systems:
- Allow employees to complete W-4s digitally
- Automatically calculate withholding based on current IRS tables
- Update withholding when employees submit changes
- Store W-4s securely with access controls
- Track when W-4s were last updated
Platforms like Breakroom that integrate with payroll systems ensure W-4 information flows correctly to withholding calculations.
The Bottom Line
The W-4 determines federal income tax withholding from employee paychecks. Every employee completes one at hire, and they can update it anytime their situation changes.
Collect W-4s on day one, enter information accurately into payroll systems, implement changes within required timeframes, and store forms securely. Don't provide tax advice, don't alter employee elections, and keep forms for at least four years.
Withholding errors hurt employees at tax time and create compliance problems for your business. Getting W-4s right is a small effort that prevents big problems.
