Q. If the employee is claiming more than 10 allowances or is exempt from withholding, do I need to submit the W-4 to the IRS?
A. No. The IRS changed this procedure in April 2005 and finalized it in July 2007. However, you must submit a copy of the W-4 if the IRS directs you to do so in a written notice, or the IRS directs you to do so in published guidance, such as a revenue procedure.
A notice from the IRS may direct you to submit copies of W-4s for one or more named employees, for all employees in a department or other business unit of the employer, or where the W-4s meet certain criteria specified in the notice. As an alternative, the IRS can send a tax examiner to visit your worksite to examine the W-4s and require you to make them available.
Note: Watch out for state laws. Many states (including Colorado) continue to require employers to submit the W-4 to the state taxing authority if a certain number of allowances or an exemption from withholding is claimed.
In Colorado, if the employee is entitled to claim exempt, or if the exemptions are greater than ten, then you must send a copy of the W-4 to the Colorado Department of Revenue to notify them of the W-4 status being claimed. The forms should be faxed to (303) 866-3018 or sent by mail to 1375 Sherman Street, Room 616, Denver, Colorado 80261.
Other states requiring submission of W-4s are AL, CA, CT, DC, GA, HI, ID, IL, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NY, NC, OH, OR, PA, PR, SC, VA, and WI. Each state has its own allowance thresholds and conditions governing when submission is required.