Question

How do I tell employees they can't claim "exempt" on their w-4 for one pay period.?

We are getting paid a bonus & many employees want to claim "exempt". I don't want our employees or the company to get into trouble for them claiming exempt when they do not meet the criteria. I am trying to find some IRS publication that outlines how they can get in trouble, and why I won't let them claim exempt. Can anyone help out. The arguement I am getting is that I have no way of knowing if they meet the criteria for exempt, so they should be able to claim it & I should honor it.
I have looked at IRS pub 15 & 17, and bulletin 919 (I think that was the number, but I have looked at so many different things). I am not trying to have others "do" my work, but I am on a tight timeline to get this done & am asking for help.

5 years ago - 6 answers

Best Answer

Chosen by Asker

Start by print out page 14 of pub 15. The one that calls the bonus supplemental wages. Then print page 14 and highlight the line that talks about "Withhold a flat 25% (no other percentage allowed)" and handwrite, for the bonus, we don't use the W-4.

Then print page 4 instructions and HIGHLIGHT the line that says "Exemption from federal income tax withholding. 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. See the Form W-4 instructions for more information. However, the wages are still subject to social security and Medicare taxes. See also Invalid Forms W-4 on page 17."

Page 17 has "Invalid Forms W-4. Any unauthorized change or addition to Form W-4 makes it invalid. This includes taking out any language by which the employee certifies that the form is correct. A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way that it is false. An employee who submits a false Form W-4 may be subject to a $500 penalty. You may treat a Form W-4 as invalid if the employee wrote “exempt” on line 7 and also entered a number on line 5 or an amount on line 6.

When you get an invalid Form W-4, do not use it to figure federal income tax withholding. Tell the employee that it is invalid and ask for another one. If the employee does not give you a valid one, withhold taxes as if the employee was single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before."

Add a statement that if you get a W-4 marked exempt, the company will have either convert it to single-0 or back to the one used just before the attempted change.

www.irs.gov/individuals/article/0,,...

Highlight Q3, Q8, the line about penalties in Q11, Q12, etc.

5 years ago

Other Answers

I wouldn't even bother, if that is what they want to do. As an employer, you don't have the responsibility of policing your employees interactions with the IRS, which is what W-4 is really for. So if they want to, I would let them. They are the ones that are violating the letter of the law when they claim exempt when not entitled to.

Do they really accomplish anything by filing as exempt at your company? Most companies take the option of withholding 25% federal tax regardless of W-4 settings for bonuses and other lump sum payments.

by Bob F - 5 years ago

A straightforward declarative sentence will do just fine.

by wartz - 5 years ago

frankly it is none of your business, it has no bearing on you or your business, its like demanding to prove they have 6 dependents. it is the employees problem if the IRS catches them

by rwa000 - 5 years ago

Bonuses are withheld at 25% flat. They cannot claim exempt.

by MadMan - 5 years ago

They may not be able to claim "exempt" but they can up their allowances.
I work for state goverment and we had a one-time bonus of $800 added to our paycheck. Personnel told everyone that they could change their withholding if they wanted to. I did. I went from 0 to 10 allowances for one pay period to get the most money. I think 10 was pretty close to 'exempt' status anyway.

by Celeste - 5 years ago