Federal and State Form W-4s: What You Need to Know

When an employer hires a new employee, they must collect certain information to run payroll, such as the federal Form W-4, "Employee's Withholding Certificate," and they may also have state and local withholding responsibilities. Here is some key information to help employers better understand the federal Form W-4 and their federal, state and local withholding responsibilities.

What are withholding certificates?

A withholding certificate is a document that tells an employer how much income tax to withhold from the employee's pay.

Some employers may be required to withhold multiple types of income tax from employee wages, including federal, state and local income taxes. To do so, the employer must distribute all of the following applicable withholding certificates to their employees to accurately run payroll:

The federal Form W-4, "Employee's Withholding Certificate," which is sent to the Internal Revenue Services (IRS) for federal income tax withholding purposes; and
State withholding certificates (these are usually handled by state agencies and departments for state income tax purposes).
In many cases, an employer will withhold local income taxes from the employee's pay and remit them to the local tax authority. However, in some places, such as Denver, Colorado, the employer may also be required to pay a tax, such as the occupational privilege tax.

Note: Employees should ensure they accurately complete their withholding certificates, as this may help them avoid overpaying taxes throughout the year or owing a large balance during the tax season.

Federal Form W-4

All new employees must complete a federal Form W-4 to determine how much federal income tax to withhold based on marital status and other adjustments an employee decides to include on their form.

Employers should:

Ask each new hire to complete a federal Form W-4 by the end of their first day of work; and
Retain the Form W-4s for at least four years.

If the employee refuses to complete a W-4, the IRS recommends that employers withhold income taxes at the highest rate for single filers, with no other adjustments.

If the employee has questions or asks for advice on how to complete a W-4, instruct them to speak with a tax advisor.

The five steps for the federal Form W-4

The federal Form W-4 contains up to five potential steps:

Step 1: This is where an employee provides their personal information.
Step 2: This step is completed if an employee has more than one job, or if they file jointly and their spouse also works.
Step 3: This area is used to provide information about the tax credits an employee expects to claim.
Step 4: This step is used when an employee wants taxes withheld for non-wage income, expects to claim certain tax deductions or wants additional tax withheld from their paycheck.
Step 5: This is where an employee signs and dates the form.

Only two steps are required: Step 1 and Step 5. If the employee completes only those two steps, their withholding will be computed based on their filing status's standard deduction and tax rate.

When to submit a new Form W-4

An employee may wish to submit a new Form W-4 when:

They start a new job.
Their marital status changes (such as marriage or divorce).
The number of their dependents changes (a child is born, adopted, or is no longer considered a dependent under the law).
They believe they have not withheld enough or have withheld too much. An employee may complete a new W-4 at any time to change the amount of withholding they claim going forward.
Tax laws change.

2026 federal Form W-4

H.R.1, the One Big Beautiful Bill Act (the Act), includes federal income tax deductions for "qualified overtime" and "qualified tips," effective for tax years 2025 through 2028. Employees can claim the deductions on their individual federal tax return. Beginning January 1, 2026, employees are able to update their Federal Form W-4 to account for expected qualified overtime and qualified tips deductions. Employees should use Worksheet 4(b) of the form to calculate the appropriate deduction amount to place on line 4(b) of the actual W-4.

State withholding certificate forms

Many states have withholding certificate forms that determine an employee's withholding tax for the state. Some states let employers calculate an employee's state income tax withholding based on the information they input on the federal Form W-4.

Requirements for states with income taxes

Generally, states with state income tax require an employee to complete a state withholding certificate (which is generally updated on an annual basis) to determine how much an employer must withhold from an employee's wages for state income tax purposes.

Employers should:

Collect employees' completed state withholding certificates;
Determine how much to withhold when running payroll; and
Store employees' state tax withholding forms in their records.

states description

Note: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington and Wyoming do not have a state income tax and only use the federal Form W-4. In Pennsylvania, everyone pays a flat rate unless exempt. Colorado, New Mexico, North Dakota and Utah use the same federal Form W-4 for state tax information.

Some states may require additional forms for special circumstances. For instance, Pennsylvania requires that new hires complete a Residency Certification Form. Employers should visit their state websites for the most up-to-date information and to help ensure compliance.

Conclusion

All new hires must complete a federal Form W-4 to determine the amount of federal income tax to withhold from their wages. Some states also require a tax withholding form. Employers should ensure they are using the latest version of the form, which may change each year. If an employee has questions or requests advice on completing a form, instruct them to consult with a tax advisor.

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