The latest IRS guidelines on electronic Forms W-4

Having employees complete Forms W-4 electronically can be a convenience to you, but be careful: IRS has issued strict guidance, and it’s recently been expanded.

Employers don’t have a “license” to simplify or modify electronic substitutes to paper W-4s, IRS warned.

After rolling out guidelines on implementing an electronic system for Forms W-4, IRS received questions. Now, you can find answers to some of those questions.

Meanwhile, the pressure’s on to get things right for 2023, as IRS just released the final version of Form W-4, Employee’s Withholding Certificate.

What IRS said

In Additional Guidance for Substitute Submissions of Form W-4, IRS made clear that “exactly” the same information contained in the paper W-4 must be provided in the electronic substitute version.

IRS threw the spotlight on Steps 1c-4c, reiterating the need to use the paper form’s exact wording.

So, how much time do you have to get up and running with new requirements that IRS releases for electronic Forms W-4? Obviously, if there’s an effective date, you’d follow that. Otherwise, you have a reasonable amount of time, which IRS defines as 90 days or less.

Let’s say requirements are included in Publication 15-T, Federal Income Tax Withholding Methods, and that’s published at the beginning of December in a given year. That’d mean by the end of February, you should have the changes incorporated into your electronic system.

Bear in mind that setting up a system to electronically receive W-4s isn’t mandatory. Therefore, switching back to paper if you don’t have enough time to comply with updates is something to consider.

Info on paper forms

Substitute paper forms are under the same scrutiny as electronic forms in that they shouldn’t deviate from the exact wording IRS uses on paper Forms W-4. That’s not all. Employers that decide to use substitute paper forms need to:

• give employees all tables, instructions and worksheets noted in the current version of the W-4, and
• comply with applicable guidance, including revenue procedures that relate to substitute paper forms.

While with electronic substitutes for the W-4, you can provide an IRS web address where employees can find certain materials, that’s not the case with paper substitute forms.