6.3 Required Payroll Records, Form W-4 & State Withholding
Key Takeaways
- The FLSA requires accurate identifying, hour, and wage records for each nonexempt worker but does not mandate a particular form; DOL Fact Sheet 21 expects payroll records to be kept at least 3 years and time cards and rate tables at least 2 years.
- IRS Publication 15 requires employment-tax records to be kept at least 4 years, including each employee's name and Social Security number as shown on the Social Security card, wage dates and amounts, and withholding certificates.
- Form W-4 was redesigned for 2020: it no longer uses withholding allowances. Step 1 (identity and filing status) and Step 5 (signature) apply to everyone; Steps 2–4 adjust for multiple jobs, credits, other income, deductions, and extra withholding.
- If a new or rehired employee does not give a completed 2026 Form W-4, withhold as if the employee checked Single or Married filing separately in Step 1(c) and left Steps 2, 3, and 4 blank.
- State income-tax withholding uses the state's certificate or procedures; some states still talk in 'allowances' even though the federal form does not. A FIT-exempt W-4 does not stop FICA, and it expires at year-end unless renewed by February 15.
Why the payroll file is part of the CB skill set
AIPB's Mastering Payroll workbook treats required payroll data and Form W-4 and state withholding as their own sections because a mathematically perfect overtime premium still fails if you cannot prove hours, rates, and the withholding certificate that drove FIT. DOL Wage and Hour investigators start with time and pay records. IRS examiners start with names, Social Security numbers, wage dates, and Forms W-4. Bookkeepers who "just run payroll in the software" without knowing what must exist underneath the click are the people who cannot reconstruct a register after a crash.
This independent OpenExamPrep section uses DOL Fact Sheet 21 (FLSA recordkeeping, 29 CFR Part 516), IRS Publication 15 (2026) sections on recordkeeping and Form W-4, and the current Form W-4, Employee's Withholding Certificate. It does not reprint Publication 15-T's income-tax computational tables.
FLSA records: no official form, but the facts are not optional
Every covered employer must keep certain records for each nonexempt worker. The Act requires no particular form, but it does require that the records include identifying information and data about hours worked and wages earned, and that the information be accurate. DOL Fact Sheet 21's basic list is the checklist AIPB-style items expect you to recognize:
| Required FLSA record element | Why it exists |
|---|---|
| Full name and Social Security number | Identity; matches wage payments to a person |
| Address, including ZIP code | Contact and location |
| Birth date if younger than 19 | Youth-employment rules |
| Sex and occupation | Equal-pay and classification context; occupational records |
| Time and day of week the employee's workweek begins | The 168-hour overtime box in section 6.2 |
| Hours worked each day and total hours each workweek | Overtime and minimum-wage math |
| Basis on which wages are paid (for example $22 per hour, $880 a week, piece rate) | Regular-rate starting point |
| Regular hourly pay rate | Overtime premium |
| Total daily or weekly straight-time earnings | Distinguishes straight-time from premium |
| Total overtime earnings for the workweek | Shows the extra half-time was paid |
| All additions to or deductions from wages | Bonuses, garnishments, benefits |
| Total wages paid each pay period | Gross-to-net proof |
| Date of payment and the pay period covered | Timing; matches the bank clearing |
Retention (Fact Sheet 21): keep payroll records, collective bargaining agreements, and sales and purchase records at least three years. Keep records on which wage computations are based—time cards, piece-work tickets, wage-rate tables, work and time schedules, and records of additions to or deductions from wages—at least two years. Records must be open to Wage and Hour representatives and may be kept at the workplace or a central office.
Posting: employers of employees subject to the FLSA minimum-wage provisions must post the official FLSA notice in a conspicuous place.
Harbor Street HVAC's bookkeeper, not the lead installer, owns this file. If Maya's time app stores daily hours but the export drops the workweek-start field, the overtime box in section 6.2 cannot be proved. If the register shows "salary" with no regular hourly rate for a nonexempt technician, the regular-rate computation is already broken.
IRS employment-tax records: a longer clock
Publication 15 tells employers to keep all records of employment taxes for at least four years and to have them available for IRS review. Those records include the employer's EIN; amounts and dates of wage, annuity, and pension payments; tips reported; allocated tips; fair market value of in-kind wages; names, addresses, occupations, and Social Security numbers of employees; copies of returns filed; dates and amounts of tax deposits; and withholding certificates (Forms W-4). Record each new employee's name and SSN as shown on the Social Security card. If the name on the card is wrong because of marriage or divorce, the employee should request an updated card; continue to report wages under the old name until the employee shows the updated card.
New-hire reporting is a separate state registry duty. Publication 15 notes that all 50 states and most territories have a new-hire registry. A new employee is one not previously employed by you, or previously employed but separated for at least 60 consecutive days. Many states accept a copy of Form W-4 with employer information added. Form I-9 verifies work eligibility; it is not a substitute for Form W-4 and is not a wage-hour time card.
Name/SSN mismatch is a payroll control, not an etiquette issue. Use SSA's Social Security Number Verification Service for name/number matches. A valid SSN does not by itself prove work authorization; that is the I-9/E-Verify lane.
Form W-4: five steps, zero allowances
The IRS redesigned Form W-4 for 2020 and later years. Before 2020, a withholding allowance was tied to the personal exemption. Taxpayers can no longer claim personal or dependency exemptions, so Form W-4 no longer asks for a number of allowances. Any exam option that says "claim 3 federal allowances on the 2026 Form W-4" is describing a retired federal mechanic. Some state certificates still use allowances; that is a state form, not the federal W-4.
Publication 15 (2026) and the current Form W-4 divide the federal certificate into five steps:
| Step | Who it is for | What the employee enters | Payroll effect |
|---|---|---|---|
| Step 1 | Everyone | Name, address, Social Security number, filing status (Single or Married filing separately; Married filing jointly or Qualifying surviving spouse; Head of household) | Sets the baseline standard deduction and rate schedule in Pub. 15-T |
| Step 2 | Multiple jobs, or a spouse who works (if MFJ) | IRS estimator, Multiple Jobs Worksheet extra amount, or the two-job checkbox | Increases withholding so two jobs are not both taxed as if each were the only job |
| Step 3 | Optional | Annual dollar amount of dependent and other credits | Decreases withholding; the current Form W-4 worksheet multiplies qualifying children under age 17 by $2,200 and other dependents by $500 when income is at or under the form's $200,000 / $400,000 MFJ threshold, then adds other credits |
| Step 4 | Optional | (a) other income (not from jobs), (b) deductions (other than the standard deduction), (c) extra withholding each pay period | 4(a) increases withholding; 4(b) decreases it; 4(c) is a flat extra dollar amount |
| Step 5 | Everyone | Signature and date | An unsigned form is not a valid withholding certificate |
Employees who complete only Step 1 and Step 5 have withholding figured from their filing status's standard deduction and tax rates with no other adjustments. That is the "single, no extras" baseline when Steps 2–4 are blank—not a count of allowances.
Multiple jobs. The Form W-4 instructions tell two-job households to complete Steps 3–4(b) on only one Form W-4, preferably the highest-paying job, and to leave those steps blank on the other jobs. Checking the Step 2(c) box uses higher withholding tables. Privacy-conscious employees can skip listing other income in Step 4(a) and instead put an extra amount in Step 4(c).
Ask each new employee for a signed 2026 Form W-4 when they start. Make it effective with the first wage payment. Publication 15: if a new employee does not give you a completed Form W-4 in 2026—including a rehired employee who fails to furnish one—treat the employee as if they had checked Single or Married filing separately in Step 1(c) and made no entries in Steps 2, 3, or 4 of the 2026 Form W-4. That is not "married with 10 allowances," and it is not "exempt."
A Form W-4 from 2025 or earlier remains in effect for 2026 unless the employee gives you a 2026 form. When you receive a replacement Form W-4, do not recompute pay periods that already ended. Begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date you received the replacement form (Publication 15 exceptions: exemption claims, IRS lock-in letters, and invalid forms).
Employees first paid before 2020 who still have a valid pre-2020 Form W-4 are not required to submit a redesigned form merely because of the redesign. All newly hired employees must use the redesigned form, and anyone who wants to adjust withholding must use the redesigned form. Pub. 15-T includes an optional computational bridge for old certificates.
Exempt, invalid, and lock-in
Exemption from FIT withholding is not a FICA holiday. An employee who writes Exempt in the space under Step 4(c) (and meets the form's tests: no federal income-tax liability last year and expecting none this year) can be skipped for federal income tax only. Still withhold Social Security and Medicare. A Form W-4 claiming exemption is effective when given to the employer and only for that calendar year. To stay exempt, the employee must give a new Form W-4 by February 15. If they do not, begin withholding as Single or Married filing separately with no Step 2–4 entries. A later exempt form applies going forward; do not refund tax already withheld while exempt status was not in place.
Invalid Form W-4. Do not use it. Tell the employee it is invalid and ask for another. If none arrives and you have an earlier valid form, keep using the earlier one. If you have no earlier valid form, use the same default as a missing 2026 form: Single or Married filing separately, Steps 2–4 blank.
Lock-in letter. The IRS may specify a permitted filing status and withholding instructions. Furnish the employee copy within 10 business days if the employee still works for you. Follow the notice; do not honor a later employee W-4 that reduces withholding below the lock-in without IRS modification.
State withholding sits beside the federal form
Federal Form W-4 does not automatically complete state income-tax withholding. Many states have their own certificate (for example, a state employee withholding allowance certificate). Some still use allowances or a different filing-status list. Reciprocity agreements may let a resident of State A working in State B withhold only for the residence state—only if that agreement exists and the employee files the state's required exemption. Local school-district or city wages taxes in some states are yet another certificate.
Worked onboarding: Sam Ortiz, hired Monday. Harbor Street's bookkeeper collects Form I-9, reports Sam to the state new-hire registry, copies the Social Security card name into the payroll master, and asks for 2026 Form W-4. Sam is single, one job, no Step 2–4 entries, signs Step 5. Federal FIT will follow Pub. 15-T for Single with no adjustments. Sam also completes the state withholding form, which still asks for allowances; the bookkeeper keys federal steps from the W-4 and state allowances from the state form. Mixing them—putting state allowances into a federal "allowances" field the 2026 W-4 does not have—is the classic software-mapping error.
If Sam refuses to sign any W-4, Harbor Street still pays wages. Federal FIT uses the missing-form default. State law may have its own default (often single with zero or one allowance). FICA withholding does not wait for a W-4 at all.
Exam traps: (1) computing 2026 federal withholding from a number of allowances. (2) Treating "Exempt" on W-4 as exempt from FICA. (3) Leaving a prior-year exempt W-4 in force after February 15 with no new form. (4) Using an invalid W-4 because "it is close enough." (5) Assuming the federal W-4 feeds every state. (6) Changing withholding retroactively for pay periods before a new W-4's effective date. (7) Filing payroll tax returns with a nickname that does not match the Social Security card.
Sam is hired in 2026 and refuses to submit Form W-4. How must Harbor Street figure federal income tax withholding on Sam's first paycheck?
Which statement correctly describes the redesigned Form W-4 used for 2020 and later years, including 2026?
Which retention statement matches DOL Fact Sheet 21 and IRS Publication 15?