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Beware serial W-4 filers

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in Payroll Today

It’s that time of year again—bonus time—because my local newspaper is running ads for all sorts of ridiculously expensive jewelry.

It’s also the time of year when employees who know just a little about their W-4s (probably from their accountants) game the system to avoid income tax withholding on those bonuses by refiling their W-4s to claim an exemption from withholding or a greater number of allowances, which has the same effect. Once they receive their bonuses, they refile again, claiming fewer allowances.

All of this refiling can create a paperwork nightmare for you. But by taking this one simple step now, you can minimize this paperwork burden.

Change the effective date of a refiled W-4

You probably never thought of having a company policy on W-4s. Employees file them when they’re first hired, and may refile again when they marry, divorce, buy a house, etc. You just put refiled forms into effect as you receive them.

You can change that. The IRS says that you should put refiled W-4s into effect as soon as possible. But it also says that you can wait until the start of the first pay period ending on or after the 30th day from the date employees give you their new forms. So count 30 days from the date employees refile with you, and go up to the next pay period. If you do this now, employees won’t be able to do the W-4 shuffle with their bonuses this year.

As with all changes in company policy, it’s best to alert employees to the change. A memo or email will do. Here’s some language you can consider.

“In order to reduce the overall paperwork burden on the Payroll department, beginning immediately, refiled W-4 forms will be put into effect with the first pay period ending on or after the 30th date from the date we receive your new form. For example, a W-4 form refiled on Nov. 30 will be placed into effect with the payday including Dec. 30. Thank you for your cooperation.”

What about next year?

Astute employees will figure out that this won’t work next year, provided they refile early enough to come in over the 30-day deadline. That’s true. But it would take an extremely motivated employee to remember this.

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