Should I report zero withholding on a $75K salary? W-4 exemption concerns

This is a really concerning situation. The "Exemption from withholding" section of the W-4 is actually quite specific and isn't meant to be used the way your operations manager is using it. To claim exemption from withholding, an employee must certify BOTH that they had no federal income tax liability last year AND they expect to have no federal income tax liability this year. At a $75K salary, it's virtually impossible for someone to legitimately have zero tax liability unless they have enormous deductions or credits. Employers actually do have a responsibility here. While you generally can rely on the W-4 as submitted, there's something called "invalid Form W-4" situations. If an employer has knowledge that the W-4 information is fraudulent, they should not honor it. The IRS publication 15 (Circular E) covers this. The third-party payroll company doesn't shield your company from liability in this case. They're just processing based on information provided - the legal responsibility still falls on the employer.

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As someone who's worked in payroll compliance for 15 years, I'd recommend documenting everything immediately. Send an email to both your manager and the payroll company expressing your concerns about the W-4 exemption claim at that salary level. Request written clarification on company policy regarding potentially invalid W-4s. This creates a paper trail showing you raised concerns appropriately. If the operations manager pushes back, suggest having your tax professional or payroll provider give a second opinion on whether the exemption claim appears valid. The IRS specifically states that someone making $75K almost certainly has tax liability unless they have massive deductions.

Has anyone looked at the "lock-in letter" process? My company went through this last year with an employee who kept claiming excessive exemptions. Eventually the IRS sent us a lock-in letter that specified exactly what withholding rate to use regardless of what the employee put on their W-4. Might be worth checking if your company has already received something like this for this employee. The IRS sends these when they notice patterns of underwithholding. They basically override whatever is on the W-4.