Important Points to Explain to Employees
It’s critical for employees to understand that the W-4 is their responsibility and directly impacts their take-home pay and tax obligation at year-end.
- Goal: The goal is for the total tax withheld to be as close as possible to the final tax liability to avoid a large tax bill or a large, interest-free loan to the government (a big refund).
- The New Form: The current W-4 (post-2020) uses filing status, income from all jobs, credits, and deductions instead of allowances.
- Accuracy: The most common reasons for inaccurate withholding are:
- Multiple Jobs: If they or their spouse have multiple jobs, they must account for the total household income in Step 2 using the IRS Withholding Estimator (most accurate), the Multiple Jobs Worksheet, or checking the box (2c) for two similar-paying jobs. If they don’t, they will likely be under-withheld.
- Credits: Claiming dependents/tax credits (Step 3) will decrease withholding, resulting in a larger paycheck.
- Adjustments: Using Step 4 to account for other income (like interest or gig economy work) will increase withholding to cover that tax liability.
- Your Role (Employer Guardrail): Do not provide tax advice. Remind employees that you are legally unable to advise them on what to enter on the form. Direct them to the IRS Tax Withholding Estimator tool or a qualified tax professional (CPA).
Best Practices for Checking In with Employees
Employees often assume their employer “just knows” how much tax to take out, making proactive communication essential.
Midyear Check-in (Around June/July)
This is the perfect time for an employer to issue a general company-wide reminder without looking at individual forms.
- Communicate the Why: Explain that tax situations change and a mid-year check-up helps them avoid surprises (owing money) at tax time.
- Triggers for a Change: Encourage review if a “life change” has occurred:
- Marriage or divorce.
- Birth or adoption of a child.
- Buying a home.
- Starting or stopping a second job (or a spouse starting/stopping work).
- A significant pay raise or cut.
- Actionable Tools: Re-share the link to the IRS Tax Withholding Estimator and inform them of the process for submitting a new W-4 (e.g., through your online payroll portal).
Before Quarter/Year End (Around September/October)
The end of the third quarter is the last good window for an employee to make a withholding change that will have a meaningful impact on the current tax year.
- Quarterly Reminders: Send a targeted reminder to employees about reviewing their year-to-date withholding (visible on their paystub) against their estimated annual tax liability.
- Focus on Final Adjustments: Advise that a new W-4 submitted now can significantly adjust their withholding for the last 3-4 months, which may help them reach their desired tax outcome (a small refund or small amount owed).
