ELECTRONIC FILING OF FORMS W-4 (EMPLOYEE'S WITHHOLDING ALLOWANCE CERTIFICATE)
A Form W-4 can be in either paper or electronic form. Employers can establish electronic Form W-4 filing systems that enable employees to file and make changes to their Forms W-4 by means of a computer network or interactive voice response system [Reg. 31.3402(f)(5)-1(c)(1)]. While employers can adopt an electronic Form W-4 system for use by all its employees, the preamble to the regulations states that a paper Form W-4 option must be "reasonably available upon request to any employee who has a serious objection to using the electronic system or whose access to, or ability to use, the system may be limited (for example, as a result of a disability). The paper option would be satisfied, for example, if the employer informs employees how they can obtain a paper Form W-4 and where they should submit the completed paper Form W-4."

Note: The electronic Form W-4 should have a field for nonresidents to enter their nonresident alien status instead of writing "Nonresident Alien" or "NRA" on line 6.

Forms That Can Be Included. All Forms W-4 can be filed electronically including initial Forms W-4 filed by new employees as well as Forms W-4 that must be submitted to the IRS (i.e., those identified by the IRS to be submitted for review). Rev. Proc. 2005-42 provides the most recent specifications for submitting Forms W-4 magnetically or electronically to the IRS.

The electronic system (alone or in conjunction with the rest of the employer's payroll system) must enable the employer to comply with an IRS notice stating that a Form W-4 is inadequate. The system can ensure compliance by prohibiting employees who have been locked-in by the IRS to a maximum number of withholding exemptions, from using an online Form W-4 system to decrease their withholding.

System Requirements. An electronic W-4 system must ensure that the information received is what was sent, and it must document all use by employees that results in the filing of a Form W-4. In addition, the system must make it reasonably certain that the person accessing the system and filing the Form W-4 is the employee identified on the form [Reg. 31.3402(f)(5)-1(c)(2)(i)].

Employee Signature Requirements. An electronically filed Form W-4 must be signed by the employee under penalties of perjury. A perjury statement (containing the language that appears on the most recent paper Form W-4) must immediately follow the employee's income tax withholding selections and immediately precede the employee's electronic signature. The electronic signature must identify the employee filing the electronic Form W-4 and authenticate and verify the filing. The electronic signature, which must be the final entry in the employee's Form W-4 submission, can be in any form that satisfies these requirements [Reg. 31.3402(f)(5)-1(c)(2)(iii)]. For example, the employer might create a personal identification number (PIN) system to identify employees.

Upon request, the employer must supply the IRS with hard copy of the electronic W-4 and a statement that, to the best of its knowledge, the electronic form was filed by the named employee. The hard copy must contain the same information, but need not be in the same form, as a paper W-4 [Reg. 31.3402(f)(5)-1(c)(2)(iv)].