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George Saenz, the Bankrate.com Tax Talk columnist Sending Form W-4 to IRS

Dear Tax Talk,
As an employer I have several employees claiming exempt on their W-4. Do I need to fax these W-4s to the IRS?
-- Ryan

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Dear Ryan,
You're thinking of the old rules. Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. A Form W-4 claiming exemption from withholding is valid for only one calendar year. To continue to be exempt from withholding in the next year, an employee must give you a new Form W-4 by Feb. 15 of that year.

Publication 15, Circular E states that:

"The IRS may also require you to submit copies of Form W-4 to the IRS as directed by a revenue procedure or notice published in the Internal Revenue Bulletin."

Publication 15A, Employers Supplemental Guide states that:

"Employers no longer have to routinely send copies of Forms W-4 claiming more than 10 allowances and certain 'exempt' Forms W-4 to the IRS."

The reason for the change is explained in Treasury Decision 9196 in April 2005:

"The Treasury Department and the IRS want to relieve employers of the burden of submitting copies of certain questionable Forms W-4 and want to more effectively address withholding noncompliance by using information already provided to the IRS. Under the temporary regulations, employers are no longer required to submit a copy of any Form W-4 on which an employee claims more than 10 withholding exemptions. In addition, under the temporary regulations, employers are no longer required to submit a copy of any Form W-4 on which an employee claims complete exemption from withholding for the taxable year if the employer reasonably expects, when the Form W-4 is received, that the employee's wages from that employer will usually be $200 or more per week. Instead, an employer must submit a copy of any currently effective withholding exemption certificate only if directed to do so in a written notice to the employer from the IRS or if directed to do so under any published guidance."

The bottom line is the IRS is either tired of looking at these W-4s or it wants to relieve you of the burden. You choose.

To ask a question on Tax Talk, go to the "Ask the Experts" page, and select "taxes" as the topic.

Bankrate.com's corrections policy-- Posted: March 13, 2007
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