Internal Revenue Service - Employee’s Withholding Allowance Certificate

The Internal Revenue Service (IRS) has issued final regulations regarding Form W-4, the "Employee’s Withholding Allowance Certificate." The regulations provide rules for income tax withholding when the IRS notifies the employer and the employee of the maximum number of withholding exemptions permitted. Former rules mandated employers to submit to the IRS a copy of each Form W-4 on which an employee claimed more than a certain number of withholding exemptions. The new regulations provide that employers must submit copies of Forms W-4 only if instructed to do so in published guidance or in a written notice to the employer from the IRS. To date, the IRS has issued no guidance on this matter. The IRS is permitted to issue a notice to an employer specifying the maximum withholding exemptions permitted to be claimed by the employee without first obtaining a copy of the withholding exemption certificate from the employer. Upon receipt of notice, the employer must withhold tax in accordance with the notice as of the date specified in the notice, which is required to be at least 45 calendar days after the date of notice. The IRS will also provide notice to the employee through an additional copy to the employer and by sending notice to the employee’s last known address. Employers are also permitted to give their employees a substitute withholding exemption certificate if the employers also gave them the worksheets contained in the Form W-4 in effect at that time. The new regulations are identical to temporary regulations which were published in April 2005, however, the new regulations specify when an employee who is not currently performing services is employed for purposes of the requirements to furnish the employee notice and withhold based on the notice, require the employer to withhold based on the notice if a terminated employment relationship is resumed within 12 months, and require employers to refuse to accept substitute withholding exemption certificates developed by employees. All parts of the current regulations which are identical to the prior regulations are effective immediately, but the changes to the temporary regulations are not effective until October 11, 2007, however, taxpayers may rely on such provisions for notices issued prior to such date.

72 Fed. Reg. 38,478 (July 13, 2007)
[IRS Final Regulation]