Form W-4 isn’t mandatory to file as an employer can just withhold at the highest single rate, but there some potential penalties that might come with it. Unlike many other tax forms, these penalties don’t come when you don’t file the form, but when you do it incorrectly.
There is only one reason why an employee may be subject to penalties. That is when the employee files it incorrectly willingly to withhold less tax than required. If this happens, and you’re caught, you’ll pay a $500 penalty.
Other than this, there are no penalties for Form W-4.
What happens when you don’t file
As stated, there are no penalties for not filing Form W-4. In case you don’t file Form W-4, nothing happens at all. Your employer will withhold federal income taxes regardless.
If you want to stop withholding federal income taxes, you’ll need to file Form W-4 but claim exempt status. So, if you don’t need to pay federal income taxes anymore, filing the form is the only way to go about it.
In the case of not filing Form W-4, your employer will withhold taxes, but at the highest rate possible. That means your employer will calculate your tax, assuming you’re a single filer with only the standard deduction on your return.
This will result in withholding more tax than you need ultimately. As you’ll be paying more tax, your cash flow will be reduced. Instead of that, forwarding that extra to an interest-bearing account at the bare minimum is much better than continuing to pay more.
The only penalty for Form W-4 is when you willingly enter inaccurate information on the form. The penalty for this is $500 per violation. Start filling out the latest Form W-4 2023.