Payroll deduction forms: what to collect and how long to keep it

Which forms belong in the deduction file

Five kinds of paperwork set a deduction, and each answers a different question. Form W-4 sets federal income tax withholding. A state certificate, such as California's DE 4 or New York's IT-2104, sets state income tax withholding. A benefit election sets a pre-tax deduction for a plan year. A garnishment order from a court or agency sets an amount the employer must withhold. A voluntary authorization is the employee's signed consent to any other deduction, such as a uniform charge.

Pull the file before the first payroll run. A missing form falls back to a default withholding setting, so the gap shows up as a wrong paycheck.

Federal W-4: the exempt renewal and the 30-day clock

The IRS About Form W-4 page identifies the current revision as the 2026 Form W-4 and advises employees to complete a new one each year and when their personal or financial situation changes. Use the 2026 version for anyone hired or changed this year.

An employee may claim exemption when they had no federal income tax liability last year and expect none this year. To stay exempt, the employee must give a new Form W-4 by February 15. If it does not arrive, Publication 15 says to withhold as if the employee checked the Single or Married filing separately box with no entries in Steps 2 through 4. For the 2026 exempt group, the renewal date is February 15, 2027, so put it on the year-end checklist and send the reminder in late January.

A replacement W-4 has its own clock. Withholding must begin no later than the start of the first payroll period ending on or after the 30th day after you receive the form. A W-4 received March 1 has its 30th day on March 31, so withholding starts with the first payroll period that ends on or after March 31. Write the receipt date on the form, because the clock starts there.

State certificates: never copy numbers from the W-4

California's EDD says new hires and employees making changes must submit both the Form W-4 and the DE 4, which covers California personal income tax only. Without a properly completed DE 4, the employer must withhold as if the employee were single with zero withholding allowances.

New York's IT-2104-I says to complete Form IT-2104 when starting a new job and to review it every year. An employee who filed before January 1, 2026 using the worksheet or charts needs a new 2026 Form IT-2104. The instructions also say that for tax years 2020 or later, withholding allowances are no longer reported on federal Form W-4, so do not copy a federal number onto the state certificate. Check each state's revenue department for its own certificate before the first payroll.

Benefit deduction authorizations

A benefit deduction needs a written election that names the plan, the contribution amount and the pay frequency. For a health FSA, Publication 15-B (2026) says a cafeteria plan may not allow salary reduction contributions above $3,400 for 2026. Use that limit only for 2026 elections, and take the next year's figure from the publication for that plan year.

Enrollment windows, mid-year change events and effective dates come from the plan document, so copy them onto the authorization. Match the deduction start and stop dates to the election dates, because a deduction taken before the election is effective, or after coverage ends, is a correction. Example: an annual election capped at $3,400 and spread across 24 semimonthly pay periods works out to one twenty-fourth of $3,400 per period, rounded down so the total never passes the limit.

Wage garnishment orders

DOL Fact Sheet #30 says an ordinary garnishment is limited to the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage. At $7.25 an hour, 30 times the minimum wage is $217.50 a week, and if weekly disposable earnings are $217.50 or less, nothing can be garnished.

Disposable earnings are what remains after required deductions such as federal, state and FICA tax, so the base is not gross pay. The two limits cross where three-quarters of disposable earnings equals $217.50. Below that point the excess is the smaller figure, and above it 25% is the smaller figure. Compare both figures every pay period rather than applying 25% by habit.

Support orders and some tax levies follow different limits, so read the order first. The Consumer Credit Protection Act prohibits firing an employee whose earnings are subject to garnishment for any one debt. Record the date the order was received, the date withholding started and the amount per pay period.

Voluntary deductions and the minimum wage floor

A voluntary deduction, such as a uniform charge or an equipment repayment, needs a signed authorization that names the item, the amount per pay period, the number of pay periods and how the employee cancels. Keep it with the W-4.

DOL Fact Sheet #16 says a deduction may not reduce the employee's wage below the $7.25 federal minimum wage, and may not cut into required overtime. An employee paid exactly the minimum wage for a 40-hour week has no room for any deduction in that week, because any amount taken out drops the hourly rate below $7.25. Spreading a charge over more paydays helps only when no workweek falls below the floor. The fact sheet also says an employer may not avoid these limits by having the employee repay the same amount in cash.

How long to keep each form

Publication 15 says to keep all records of employment taxes for at least 4 years, and copies of employees' Forms W-4 are on its list. The publication does not say where the four years starts, but the employment tax regulations measure it from the later of the due date of the return (April 15 of the following year) or the date the tax was paid, so keep each W-4 and state certificate for at least four years from that date. State rules can require longer.

DOL Fact Sheet #21 sets the FLSA periods: payroll records for at least three years, and wage computation records, including records of additions to or deductions from wages, for two years. A four-year file covers both.

Under 8 CFR 274a.2(b)(2)(i)(A), an employer keeps Form I-9 until the later of three years after the date of hire or one year after employment ends. USCIS recommends keeping it separate from personnel records, and says forms must be presented within 3 business days of a request. Electronic storage is allowed.

Errors that cause payroll corrections

Copying federal W-4 allowances onto a state certificate. Fix: have the employee complete the state form from its own worksheet.

Using an old state form for 2026 pay. Fix: at each new-hire and annual review, check the form year in the file against the current instructions, including the January 1, 2026 rule for New York.

Missing the February 15 renewal. Fix: keep a list of exempt employees, send the reminder in late January, and apply the default withholding if nothing arrives by February 15.

Taking garnishment from gross pay. Fix: start from disposable earnings and apply the lesser-of test each pay period.

Benefit deductions that run past the plan limit or the election end date. Fix: cap the per-period amount at the limit divided by the pay periods, and end the deduction with the election.

Voluntary deductions that push a workweek below minimum wage. Fix: test each deduction against a 40-hour week at $7.25 before it is set up.

Wording to send employees

For an employee who has not returned a W-4, use this: "Your federal Form W-4 is needed to set your federal income tax withholding. Please complete, sign and return it by [date]. If you were exempt last year and want to stay exempt, the new form must reach us by February 15." Send it in writing and file the reply.

For a state certificate, use this: "Please complete the [state] withholding certificate on its own form. Do not copy numbers from your federal Form W-4." Log the date sent next to the form in the file.