Why Accurate Form W-4 Processing Is Critical for Employee Finances

The Form W-4, Employee’s Withholding Certificate, plays a significant role in shaping an individual’s income tax obligations, industry experts said May 16. This form directly influences the amount of federal income tax withheld from each paycheck and, ultimately, employees’ personal income tax returns, said Gerard M. Hall, CPP, director of payroll operations at CBIZ, and Ron Moser, CPP, director of payroll training at PayrollOrg.

Hall and Moser spoke at the 2025 Payroll Congress in Kissimmee, Florida. Gerard Hall is a member of Bloomberg Tax’s Payroll Advisory Board.

Understanding the implications of Form W-4 is crucial not only for accurate payroll processing but also for the financial well-being of employees, Hall said.

One of the critical factors in ensuring accurate income tax withholding is selecting the appropriate filing status, Hall said. An individual’s filing status influences the standard deduction applicable to their tax return, which can significantly alter their overall tax liability, he continued.

Misunderstanding or improperly selecting a filing status can result in underwithholding, leading to unexpected tax bills, or overwithholding, which can diminish an employee’s net pay, Hall added.

While Steps 1 and 5 of the Form W-4 relating to employees’ personal data and attestation are mandatory, Steps 2, 3, and 4, which relate to multiple jobs, dependents, and additional adjustments, are not required, he said. This means that a Form W-4 is still valid even though these sections are not completed, Hall added.

To complete Step 2 of the Form W-4, an employee may opt for the IRS tax estimator, use the multiple jobs worksheet on page 3 of the Form W-4 instructions, or check the box in Step 2(c) of the form, he said. The IRS tax estimator provides the most accurate calculation, Hall added.

Payroll professionals should constantly review their payroll system for the validity of submitted Forms W-4, Hall said. However, they must also exercise caution to avoid providing tax or legal advice to employees when completing the form, he continued. Rather, employees should be instructed to consult their tax advisor or attorney for personalized tax advice.

“We don’t play Form W-4 police, that is not our duty,” Hall said. Unless an employee expressly informs the payroll professional about a false entry in their Form W-4, payroll professionals should not concern themselves with the accuracy of the information contained in the form, Hall continued.

The primary responsibility of payroll professionals is to verify that a valid Form W-4 has been submitted by the employee, he said. It is not the responsibility of payroll professionals to verify the accuracy of the information entered by the employee about their filing status, exemptions, or deductions, Hall continued.

“Withhold according to the information provided by the employee on their Form W-4,” he said. If an employee provides a valid Form W-4, payroll professionals are required to accept it. However, any invalid form must be rejected, Hall added. An employee may be personally liable for perjury for any false information in their Form W-4, he said.

Payroll professionals should refer to Publication 15-T for guidance on federal withholding calculations, Moser said. Payroll professionals can calculate the withholdings using the percentage method and wage bracket method for the pre- and post-2020 Form W-4, he added.

If an employee fails to submit a valid Form W-4 or fails to provide an initial form, the payroll professional withholds as if the employee is filing as single or married filing separately, Hall said.

Payroll professionals can guide employees to the IRS tax withholding estimator and remind them to submit a revised Form W-4 if their filing status has changed, Hall said. However, employees cannot submit a revised Form W-4 before the qualifying life-changing event, Hall continued.
Employees wishing to claim an exemption are required to do so by Feb 15, Hall said.

Employees should ensure a valid Form W-4 is submitted when they are hired and have it updated when necessary, Hall said. Once submitted, the form remains valid until a new form is provided, he added.

In today’s complex tax environment, payroll professionals need to understand the nuances of the Form W-4 and be equipped with current knowledge about withholding regulations to ensure payroll compliance and accurate payroll processing, Hall and Moser said. Additionally, it is beneficial for employees to understand how the form will impact their paycheck, the experts concluded.