As an employer, you know how important W-4 forms are. These forms determine how much tax is withheld from your employees’ paychecks and are a key part of staying compliant with payroll regulations. Keeping current W-4s on file helps ensure accurate tax withholding and protects your business from compliance issues.
Employees typically complete a W-4 when they are first hired, but updates may be required after major life changes such as marriage, divorce, or the birth of a child. In some states, employees need to complete both a federal and a state W-4, which can make the process a little more complicated.
The Federal W-4 Form
The federal W-4 form, officially called the Employee Withholding Certificate, tells employers how much federal income tax to withhold from an employee’s paycheck.
In 2020, following the Tax Cuts and Jobs Act of 2017, the IRS redesigned the W-4. The old allowance system was eliminated, and the form was streamlined into a five-step process that makes it easier for employees to provide accurate withholding information. Employers must use this version for all new hires and for anyone who chooses to update their federal withholding.
State W-4 Forms
If your business operates in a state with an income tax, a separate state W-4 form may be required. While the federal form covers federal withholding, the state form ensures the correct amount of state income tax is withheld.
Some states accept the federal W-4 for this purpose. Others, including Indiana, Ohio, Illinois, and Kentucky, require their own version of the form. Employers in these states must collect both a federal and a state W-4 when hiring a new employee.
Key Differences Between Federal and State W-4s
Here are the main distinctions employers need to keep in mind:
- Federal vs. State Purpose: The federal W-4 sets federal withholding, while the state W-4 sets state withholding.
- Who Oversees Them: Federal W-4s are processed by the IRS. State W-4s are managed by the state’s Department of Revenue or similar agency.
- Use of Allowances: The federal form no longer uses allowances. Some state forms still allow them.
- When to Complete: Both forms should be completed at hire and updated after major changes in an employee’s personal or tax situation.
Why Collecting Both Matters
If you operate in a state that requires a state W-4 and you fail to collect it, your payroll may be incorrect. This can result in employees being under- or over-withheld, which causes frustration and extra work during year-end tax reporting. It may also expose your business to compliance penalties from state tax authorities.
How ASAP Payroll Supports Employers
Managing multiple tax forms can feel overwhelming, especially if you employ people in more than one state. ASAP Payroll provides tools and checklists to keep onboarding and tax documentation on track. Our team helps ensure that both federal and state W-4s are completed correctly so you can avoid costly mistakes and focus on running your business.
Interested in hearing more about how ASAP Payroll can streamline your small business onboarding and tax form management? Get in touch with our team at (317) 887-2727 or visit our Onboarding Services page for more information.