A voluntary withholding agreement is an arrangement in which an employer and employee agree to allow the employer to withhold a specific amount from the employee's payroll check. Employees can voluntarily choose to withhold state and federal income taxes from their payroll checks through these agreements, rather than pay the full tax bill at the end of the year. Although these agreements are termed as "voluntary," the Internal Revenue Service "strongly encourages" the use of them to reduce the employee's tax burden.
IRS Form W-4
A required component of a voluntary withholding agreement is the completion of IRS Form W-4. This form allows the employee to cite the number of personal allowances for a spouse, dependents and child care expenses, as well as any additional amounts the employee wants to withhold from the payroll check. The IRS also states that employees should determine if their employers will process the voluntary withholding agreements before submitting such agreements for approval.
Voluntary Withholding and Clergy
Priests, ministers and other clergy members can set up voluntary withholding agreements to withhold income taxes from their paychecks. The minister can complete a W-4 form and submit it to the religious organization for approval. The agreement must contain the minister's name, address and Social Security number, the name and address of the church, and a signed statement attesting that the minister wants to withhold monies for the payment of income tax.
Voluntary Withholding and Government Assistance
Recipients of some forms of government assistance are also liable for quarterly income tax payments. People who receive unemployment insurance payments, such as payments from the Railroad Unemployment Insurance Act (RUIA), as well as Social Security benefits, Commodity Credit Corporation loans, and some crop disaster payments can choose to enter into voluntary withholding agreements. IRS Form W-4V allows recipients of unemployment compensation to withhold 10 percent from each payment. Recipients of any other type of government payment listed on the form can choose to withhold either 7 percent, 10 percent, 15 percent or 25 percent from each payment.
Termination of Voluntary Withholding
If either party wants to end the voluntary withholding agreement, they must each agree to do so in writing. The termination agreement states that the employee understands that ending or withdrawing from the agreement releases the employer from any previous arrangements to make payroll withholdings on the employee's behalf. The employee also agrees that he will be personally responsible for all income taxes due from that point forward, and that the employer is no longer responsible for that employee's tax liability.
- Tax Freedom: Terminating W-4 Agreements
- Legal Information Institute: 26 CFR 31.3402(p)-1 - Voluntary withholding agreements.
- Minnesota Department of Revenue: Voluntary Withholding
- U.S. Internal Revenue Service: Part 5. Collecting Process Chapter 14. Installment Agreements Section 10. Payroll Deduction Agreements and Direct Debit Installment Agreements
- Clergy Financial Resources: Clergy Tax Facts
- Comstock Images/Stockbyte/Getty Images
- How to Withhold Federal Taxes on a Lump Sum Payment
- What Is the Difference Between Payroll Tax & Income Tax?
- Are Workers' Compensation Benefits Taxable?
- What Is Tax Form 1099-G?
- Must an Employer Withhold Federal Taxes on an Hourly Employee?
- Who Is Responsible if an Employer Did Not Take Out the Right Taxes?
- A List of the Federal Taxes Withheld From Most Employee Paychecks
- What Are Due Dates for Estimated Federal Income Tax Payments?