What is the required retention period for an employee's W-4 by the employer?

The correct retention period for an employee's W-4 form is four years. Employers need to retain the W-4 form because it provides critical information regarding an employee's withholding allowances and filing status, which directly impact the amount of federal income tax withheld from their paychecks.

The four-year retention period aligns with the IRS's regulations regarding the documentation that needs to be kept related to the employment tax records. Specifically, employers must retain these forms for the length of time it takes the IRS to assess any potential issues related to an employee’s tax withholdings. If employers can verify that the information was properly documented and withholding was appropriately done for four years after the employee's last year of employment, they are in compliance with IRS requirements. Retaining W-4s for a shorter duration would put the employer at risk of non-compliance if any questions or audits arise from the IRS regarding those records.

Therefore, retaining W-4 forms for four years helps employers ensure they have the necessary documentation should they need to address inquiries or audits by the IRS concerning withholding practices.