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| Issue: |
You are no longer routinely submitting Form W-4 to the IRS. However, the IRS has determined that one of your employees does not have enough federal income tax withheld and has sent your Payroll Department a “lock-in” letter specifying “two” as the maximum number of withholding allowances the employee is permitted. In response, the Payroll Department has locked in withholdings on the employee, but he has supplied a revised Form W-4. What do you do? |
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Answer: |
Employers are no longer required to routinely submit Forms W-4 to the IRS. In certain circumstances, the IRS may direct you to submit copies of Forms W-4 for certain employees in order to ensure that the employees have adequate withholding. You are now required to submit the Forms W-4 to IRS only if directed to do so in a written notice. The IRS now determines adequate withholding by making more effective use of information contained in its records, along with information reported on Form W-2 wage statements, to ensure that employees have enough federal income tax withheld.
After the receipt of a lock-in letter, you must disregard any Form W-4 that decreases the amount of withholding. The employee must submit for approval to the IRS any new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease federal income tax withholding. The employee should send the Form W-4 and statement directly to the address on the lock-in letter.
The IRS will notify you to withhold at a specific rate if the employee's request is approved. However, if at any time the employee furnishes a Form W-4 that claims a number of withholding allowances less than the maximum number specified in the lock-in letter, you must increase withholding by withholding tax based on that Form W-4.
Source: IRS Notice, August 2005, which is reproduced at CCH Payroll Management Guide ¶9610. |
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