Information Release

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.

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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.

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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.