A New W-4 Every Year?

Q. My employer says I have to complete a new W-4 every year. Is this true? How often do I have to do this? It’s always the same.

A. I’m amazed at how many questions come in regarding the Form W-4. This deceivingly simple document creates confusion for all levels of employees. In reality, you never have to complete a W-4 and provide it to your employer. In the case where there is no W-4 on file, you employer will simply set your withholding at the highest levels provided for in the withholding tables, filing status single with zero exemptions. For many employees who do not itemize and have no dependents, this may be completely appropriate any way. However, for those wishing to execute a sound financial plan, a Form W-4 needs to be submitted using numbers agreed upon with your accountant or tax adviser.

That being said, once you have a Form W-4 on file with your employer, there are only two reasons to update it. First, if your tax situation changes you need to complete a new form as soon as possible. This could include situations such as marriage or divorce, child birth, a home purchase or even a change of address. All of these situations can affect the number of exemptions you claim. If your tax situation does not change, you don’t need to submit a new W-4. It’s that simple!

The second reason for you to update your Form W-4 is where most of the confusion about annual updating actually exists. Those who claim exempt must submit a new Form W-4 by February 15 each year if they wish to claim exempt for the current tax year. If the employee does not submit a new form by that date, the employer is to act as if no W-4 is on file and withhold at the single filing status with no exemptions, just like mentioned earlier.

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