Q. I own a restaurant and employ about 25 people at a time. I am often asked by new hires for help completing their Form W-4. I have been advised by my human resources consultant that I should never help my employees fill out this paperwork. Is this really an issue I should be concerned about? Do I have any legal exposure?
A. Familiar scenario? You hire a new employee and hand him/her a Form W-4. The new employee reads the directions to the form, immediately goes cross-eyed, and approaches you for help. What do you say? What should you say?
To properly complete the new 2020 Form W-4, an employee may need to complete the Claimed Dependents, Other Income, Adjustments, and Multiple Job worksheets. These worksheets require personal information that is extremely confidential to the employee such as their outside income, itemized deductions, and marital and dependent status. To provide proper advice to the employee, one needs to be privy to this sensitive information — information that an employer or human resource administrator has NO right to request!
The completion of the Form W-4 can require calculations tantamount to preparing an income tax projection. Even if the employee were to volunteer the confidential financial and personal information required for the Form W-4 worksheets, an employer or human resource administrator generally does not possess the skills and experience of a certified public accountant or tax preparer to complete the form. It is also doubtful that you or your company would want to create (at best) a disgruntled employee or (at worst) potential legal liability by providing incorrect tax advice.
Imagine the situation where an employer advises an employee to claim too many exemptions on their Form W-4 leading to a Form W-2 with not enough withholding tax, and resulting in an unexpected tax liability and underestimation tax penalty due on April 15 — not exactly the best circumstances to promote good employee morale.
To avoid the Form W-4 liability trap, the obvious approach by employers or human resource administrators is to advise employees to seek counsel from their certified public accountant or tax preparer. If they do not have a tax professional, then refer them to an experienced one. No other Form W-4 assistance should be given to the employee. Remember, there is NO benefit to the employer by providing tax advice, only potential legal exposure!
Barry Dolowich is a certified public accountant and owner of a full-service accounting and tax practice with offices in Monterey. He can be reached at 372-7200. Please address any questions to Barry at PO Box 710 Monterey, CA 93942-0710 or email: email@example.com.
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