IT 2001-01 - Proper Completion of Form IT-4 - August 31, 2001
Purpose
The purpose of this information release is to explain how
employers should determine if their employees have properly
completed an Ohio Withholding Exemption Certificate (Form
IT-4) and to advise employers what steps to take if an
employee submits an improperly completed Form IT-4.
Statutory Authority for Withholding Ohio Income Tax
and School District Income Tax
Ohio Revised Code section 5747.06(A) states, in part:
"... every employer, including the state and its political
subdivisions, maintaining an office or transacting business
within this state and making payment of compensation to an
employee who is a taxpayer shall deduct and withhold from
such compensation for each payroll period a tax computed in
such a manner as to result, as far as practicable in
withholding from an employee's compensation during each
calendar year an amount substantially equivalent to the tax
reasonably estimated to be due from the employee under this
chapter [personal income tax] and Chapter 5748 [school
district income tax] ...".1
Administrative Rule Addressing the Use of Form
IT-4
The Tax Commissioner issued guidance in the use of Form IT-4
with the issuance of Tax Commissioner Rule 5703-7-06 which
states:
"Under the provisions of Section 5747.18(B), Ohio Revised
Code, it is hereby required that for purposes of withholding
the Ohio personal income tax, as required by Section 5747.06,
Ohio Revised Code, Ohio employers and employees shall utilize
Ohio Form IT-4.
The number of personal exemptions to which an employee is
entitled shall be determined only from a properly completed
IT-4, and if such form is not properly completed and filed
with the employer, the employer shall withhold the Ohio
personal income tax without exemptions."
The Application of Statutory Authority and the Tax
Commissioner's Rule
To conform with Ohio Revised Code section 5747.06 and Tax
Commissioner's Rule 5703-7-06, employers may use either the
wage bracket method or the percentage method of withholding
found in the Employer's Ohio Income Tax Withholding
Tables. If the employee resides in a school district with
a school district income tax in effect, the employer shall
also withhold school district income tax based upon the
proper school district income tax rate.
How to Identify a Properly Completed Form
IT-4
On the IT-4 an employee may claim:
- a personal exemption for himself/herself;
- an exemption for his/her spouse;
- an exemption for each dependent.
Employees may not claim exemptions for dependents in excess
of their natural dependents. For example, if John Smith is
married and has nine dependent children, then on a properly
completed IT-4 he may claim a total of eleven personal and
dependent exemptions. Health insurance records are often a
good source to verify the number of dependents.
Please note that federal itemized deductions do not affect a
taxpayer's federal adjusted gross income. Therefore, an
employee cannot use excess federal itemized deductions to
increase the number of Ohio dependent exemptions claimed on
Form IT-4.
How to Identify an Improperly Completed IT-4
We will consider a Form IT-4 to be improperly completed if:
- an employee claims more than nine dependent exemptions,
and the employee cannot provide social security numbers for
each dependent or
- the employee claims to be totally "exempt" from the Ohio
personal income tax
The most serious type of an improperly completed Form IT-4
involves Ohio resident employees who claim to be totally
exempt from state income taxes. These employees often state
on documentation that accompanies their Form IT-4's that
wages should be excluded from the definition of income. This
issue was presented in Herbert H. and Shelva J. McKinley
v. Roger W. Tracy, Tax Commissioner of Ohio, Ohio Board of
Tax Appeals case # 91-M-1185, 09/10/1993. The Board
found that " wages ***** are income to the recipient
unless excluded by law."
Some employees claim total exemption on Form IT-4 because
they are not residents of Ohio. Please note that the Ohio
personal income tax is levied upon all residents and all
nonresidents who earn or receive income in Ohio except as
noted on the following page.
Exception: Residents of Neighboring States
Residents of Indiana, Kentucky, Michigan, Pennsylvania and
West Virginia who work in Ohio must pay taxes on their wage
income to their state of residency. Ohio, Indiana, Kentucky,
Michigan, Pennsylvania and West Virginia have entered into a
series of agreements permitting residents of these
neighboring states to avoid having Ohio income tax withheld
from their wages. These employees should complete Form
IT-4NR. Employers should maintain a copy of Form IT-4NR for
each employee who claims exemption under this provision.
The Employer's Responsibility when the Employer
Receives an Improperly Completed Form IT-4
Employers receiving an improperly completed Form IT-4 should:
- forward a copy of the improperly completed Form IT-4 to
the Ohio Dept. of Taxation, PO Box 2476, Columbus, Ohio
43216-0076, Attention: Income Tax Division and
- withhold Ohio personal income tax without exemption until
the employee completes and submits a properly completed Form
IT-4.
Tax and Penalties:
Ohio Revised Code section 5747.06 states, in part, as
follows:
"(C) The failure of an employer to withhold tax as required
by this section or to remit such tax as required by law does
not relieve an employee from the liability for the tax.
D) If an employer fails to deduct and withhold tax as
required, and thereafter the tax is paid, the tax so required
to be deducted and withheld shall not be collected from the
employer, but the employer is not relieved from liability for
penalties and interest otherwise applicable ...".
This section advises employers they are liable for the tax if
they do not withhold and, even if the employee pays the tax,
the employer is still subject to interest and penalties.
* * * * *
If you have any questions about this information release, we
urge you to contact the Income Tax Division at the following
telephone numbers:
By phone: (614) 433-7603
TDY: (800) 750-0750
By fax: (614) 846-9504
§ 5747.06 Withholding; exceptions; notification of amount
withheld; liability of employer.
(A) Except as provided in division (E)(3) of this section,
every employer, including the state and its political
subdivisions, maintaining an office or transacting business
within this state and making payment of any compensation to
an employee who is a taxpayer shall deduct and withhold from
such compensation for each payroll period a tax computed in
such manner as to result, as far as practicable, in
withholding from the employee's compensation during each
calendar year an amount substantially equivalent to the tax
reasonably estimated to be due from the employee under this
chapter and Chapter 5748. of the Revised Code with respect to
the amount of such compensation included in his adjusted
gross income during the calendar year. The employer shall
deduct and withhold the tax on the date that the employer
directly, indirectly, or constructively pays the compensation
to, or credits the compensation to the benefit of, the
employee. The method of determining the amount to be withheld
shall be prescribed by rule of the tax commissioner.
In addition to any other exclusions from withholding
permitted under this section, no tax shall be withheld by an
employer from the compensation of an employee when such
compensation is paid for:
(1) Agricultural labor as defined in division G of section
3121 of Title 26 of the United States Code;
(2) Domestic service in a private home, local college club,
or local chapter of a college fraternity or sorority;
(3) Service performed in any calendar quarter by an employee
unless the cash remuneration paid for such service is three
hundred dollars or more and such service is performed by an
individual who is regularly employed by such employer to
perform such service;
(4) Services performed for a foreign government or an
international organization;
(5) Services performed by an individual under the age of
eighteen in the delivery or distribution of newspapers or
shopping news, not including delivery or distribution to any
point for subsequent delivery or distribution, or when
performed by such individual under the age of eighteen under
an arrangement where newspapers or magazines are to be sold
by him at a fixed price, his compensation being based on the
retention of the excess of such price over the amount at
which the newspapers or magazines are charged to him;
(6) Services not in the course of the employer's trade or
business to the extent paid in any medium other than
cash.
(B) Every employer required to deduct and withhold tax from
the compensation of an employee under this chapter shall
furnish to each employee, with respect to the compensation
paid by such employer to such employee during the calendar
year, on or before the thirty-first day of January of the
succeeding year, or, if his employment is terminated before
the close of such calendar year, within thirty days from the
date on which the last payment of compensation was made, a
written statement as prescribed by the tax commissioner
showing the amount of compensation paid by the employer to
the employee, the amount deducted and withheld as state
income tax, any amount deducted and withheld as school
district income tax for each applicable school district, and
any other information as the commissioner prescribes.
(C) The failure of an employer to withhold tax as required by
this section or to remit such tax as required by law does not
relieve an employee from the liability for the tax.
(D) If an employer fails to deduct and withhold any tax as
required, and thereafter the tax is paid, the tax so required
to be deducted and withheld shall not be collected from the
employer, but the employer is not relieved from liability for
penalties and interest otherwise applicable in respect to the
failure to deduct and withhold the tax.
(E) To ensure that taxes imposed pursuant to Chapter 5748. of
the Revised Code are deducted and withheld as provided in
this section:
(1) Each employer shall request that each of his employees
furnish the name of the employee's school district of
residence;
(2) Each employee shall furnish his employer with sufficient
and correct information to enable the employer to withhold
the taxes imposed under Chapter 5748. of the Revised Code.
The employee shall provide additional or corrected
information whenever information previously provided by him
to his employer becomes insufficient or incorrect.
(3) If the employer complies with the requirements of
division (E)(1) of this section and if the employee fails to
comply with the requirements of division (E)(2) of this
section, the employer is not required to withhold and pay the
taxes imposed under Chapter 5748. of the Revised Code and is
not subject to any penalties and interest otherwise
applicable for failing to deduct and withhold such taxes.
____________________________________________
1 Ohio Revised Code section 5747.06 contains
several exceptions to this withholding requirement. Attached
to this information release is a flow chart setting forth those
exceptions.