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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10122
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have filed a new W4 to claim 99 exceptions so there are

Customer Question

I have filed a new W4 to claim 99 exceptions so there are not as many taxes taken out of my final paycheck. My last check has pto acquired hours. My employer has denied me this and states I have to pay in at least 20%. Even after filling out the new W4, Is this correct or legal.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

No, it is not.

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See this from IRS' withholding compliance Q&A, here: http://www.irs.gov/Individuals/Withholding-Compliance-Questions-&-Answers

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Withholding Compliance Questions & Answers

Q1: In the past, as an employer, I was required to submit all Forms W-4 that claimed complete exemption from withholding (when $200 or more in weekly wages were regularly expected) or claimed more than 10 allowances. What Forms W-4 do I now have to submit to the IRS?

A1: Employers are no longer required to routinely submit Forms W-4 to the IRS. However, in certain circumstances, the IRS may direct you to submit copies of Forms W-4 for certain employees in order to ensure that the employees have adequate withholding. You are now required to submit the Forms W-4 to IRS only if directed to do so in a written notice or pursuant to specified criteria set forth in future published guidance.

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This one is also applicable:

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Q2: If an employer no longer has to submit Forms W-4 claiming complete exemption from withholding or claiming more than 10 allowances, how does the IRS determine adequate withholding?

A2: The IRS is making more effective use of information contained in its records along with information reported on Form W-2 wage statements to ensure that employees have enough federal income tax withheld.

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You might want to show this to your employer.

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Your employer MUST (unless they have been directed IN ADVANCE otherwise, by IRS), honor your W-4

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Let me know if you have questions...

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Lane

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Expert:  Robin D. replied 1 year ago.

Employers can choose between two methods of withholding federal taxes from bonus or supplemental income when it is given to the employee in a check or direct deposit separate from regular income.

It appears from your post that the employer chooses to use the flat rate. This is compliant with state rules as well.

If an employer makes supplemental payments to employees, they must withhold Minnesota income tax just as for regular wages. There are different ways to calculate that withholding, depending on when the employer makes the payments and how they list them on their payroll records.

If the employer makes supplemental payments at different times than regular wages or paychecks, they multiply the supplemental pay amount by 6.25 percent (.0625) to calculate how much Minnesota tax to withhold. Federal is same treatment and 25% is generally withheld.

If the employer lists the payments separately on payroll records – regardless of how they are listed on employee paychecks – the employer may use either the flat rate or go by the W4.

This is not the choice of the employee but is determined how the employer pays and accounts for the supplemental wages.

Your employer is not required to follow the W4 change for this supplemental payment. In addition to that, claiming 99 exemptions is also claiming tax exempt status which is not correct and invalidates the W4.

When an employee files their actual return, they will be refunded any tax that was withheld that is over the total liability after all income is added together, but, withholding rules are on the employer.

Expert:  Lane replied 1 year ago.
You said in your question, that this was your last paycheck, rather than an additional or separate check.
From IRS publication 15:
"For Supplemental wages combined with regular wages. If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period."
Hope this helps to clarify ... If the amount was Supplemental wages combined with regular wages. If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period.
If the PTO is identified and broken out separately on the paycheck, the post above would be correct, but if this is, as you mentioned, simply your last paycheck and had PTO added then they MAY in deed withhold as if this were a regular payroll period, based on your W-4.

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