IRS Lock-In Letters - What's An Employer To Do?

Employers often ask employees to designate the amount of tax withholdings for paychecks. Occasionally, employees will fail to withhold a sufficient amount in the eyes of the IRS. The IRS will then send a "lock-in" letter on the amount to be withheld. What's an employer to do?

Withholdings

Four taxes must be withheld from employee paychecks - Medicare, Social Security, Federal Income and State Income tax. The Medicare tax is set at roughly 1.5 percent of salary while social security is set at 6.2 percent. The withholding for federal and state income tax, however, is subject to adjustments made by employees. The amount of tax required to be withheld by the IRS requires a calculation beyond the scope of this article, but you can look to the "Employer's Tax Guide" on the IRS web site.

If an employee claims excessive deductions that result in insufficient withholdings, the IRS may respond. The typical response is to send an employer a "lock-in" letter.

The lock-in letter tells the employer to increase the amount of withholding tax of the employee. The IRS will actually specify the maximum number of withholding exemptions the employee can claim. The more exemptions claimed, the less tax withheld in each paycheck. The IRS will also send a copy of the correspondence to the employee.

As an employer, you must comply with the IRS lock-in letter. The IRS will designate a specific compliance date. Better to have died a small child than fail to comply with the letter. Failure to comply will result in the tax liability transferring from the employee to the employer. The employer can also expect the unwanted attention of IRS auditors. In short, make absolutely sure you comply with the lock-in letter.

What should you do if you receive a lock-in letter, but the employee no longer works for you? You must send a written response to the IRS office listed in the correspondence. The response must state the employee no longer works for you and the last date of employment to the best of your knowledge.

What should you do if the employee refuses to comply with the lock-in letter? You must comply with the lock-in letter. The employee's wish is irrelevant and you have no discretion in the matter. Instead, the employee should be told to contact the IRS directly and request a modification to the lock-in letter.

Lock-in letters can cause stress in employee-employer relationships. Unfortunately, there isn't much you can do about.

Richard Chapo is with http://www.businesstaxrecovery.com - recovering overpaid taxes for small businesses. Visit our article section - http://www.businesstaxrecovery.com/articles - to read more tax articles.

MORE RESOURCES:

As the Economy Sinks, So Do Odds of a Tax Cut - U.S. News World Report

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Tax experts suggest ways to close $300 billion gap - The Associated Press

California GOP Legislators Stop Billions in New Taxes - Human Events

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Correlate activities and considerations to avert double tax in EPC - Hindu

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd width=80 align=center valign=topfont style=font-size:85%;font-family:arial,sans-serifa href=http://news.google.com/news/url?sa=Tct=us/3i-0fd=Rurl=http://www.presstv.ir/detail.aspx%3Fid%3D71739%26sectionid%3D351020102cid=1256151867ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNGr2_zfPYtVGUdIfVARqaCQDWFargimg src=http://news.google.com/news?imgefp=cWYafCHb0b8Jimgurl=www.presstv.ir/photo/20081009/bageri_d20081009193908328.jpg width=80 height=54 alt= border=1brfont size=-2PRESS TV/font/a/font/tdtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/3-0fd=Rurl=http://www.hindu.com/thehindu/holnus/006200810102194.htmcid=1256151867ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNHNJlAfRw9Dojl9OYJvDgz_wpECrQCorrelate activities and considerations to avert double btax/b in EPC/abrfont size=-1font color=#6f6f6fHindu,nbsp;Indianbsp;-/font nobr7 hours ago/nobr/fontbrfont size=-1Appropriate structuring of EPC (engineering, procurement and construction) contracts is essential to minimise both direct and indirect btax/b costs, b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/3-1fd=Rurl=http://www.iranmania.com/News/ArticleView/Default.asp%3FNewsCode%3D62196%26NewsKind%3DCurrent%2520Affairscid=1256151867ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNEHVK7xUe-RxZJMatADIgUCr01P3wIranian jewelers strike over VAT/a font size=-1 color=#6f6f6fnobrIranMania News/nobr/font/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/3-2fd=Rurl=http://www.presstv.ir/detail.aspx%3Fid%3D71739%26sectionid%3D351020102cid=1256151867ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNGr2_zfPYtVGUdIfVARqaCQDWFargVAT btax/b mechanism put on hold/a font size=-1 color=#6f6f6fnobrPRESS TV/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1256151867hl=ennobrall 6 news articles/nobr/a/font/div/font/td/tr/table

The Problem With Tax-Exempt Health Insurance - New York Times

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/4-0fd=Rurl=http://campaignstops.blogs.nytimes.com/2008/10/10/the-problem-with-tax-exempt-health-insurance/%3Fref%3Dopinioncid=1256261296ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNGX8pEglPGy5fD4-109c_L8IZ7TEwThe Problem With bTax/b-Exempt Health Insurance/abrfont size=-1font color=#6f6f6fNew York Times,nbsp;United Statesnbsp;-/font nobr1 hour ago/nobr/fontbrfont size=-1By Ezekiel Emanuel In this installment of Health Care Watch, Stuart M. Butler and Ezekiel Emanuel talk about what the candidates are saying about btaxes/b and b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/4-1fd=Rurl=http://www.miamiherald.com/news/politics/AP/story/719391.htmlcid=1256261296ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNFHURVwM17pdfoa2XSmIg1x_73KWAMcCain#39;s btax/b credit for health care raises questions about savings b.../b/a font size=-1 color=#6f6f6fnobrThe Miami Herald/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1256261296hl=ennobrall 27 news articles/nobr/a/font/div/font/td/tr/table

Oakland split over raising taxes for more cops - San Francisco Chronicle

Higher fees, taxes spark concern in Toronto - CBC.ca

Where candidates stand: Taxes - Oshkosh Northwestern

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd width=80 align=center valign=topfont style=font-size:85%;font-family:arial,sans-serifa href=http://news.google.com/news/url?sa=Tct=us/7i-0fd=Rurl=http://online.wsj.com/article/SB122343823408914411.html%3Fmod%3Dspecial_page_campaign2008_mostpopcid=1252219486ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNHzvFKFjn03k9ssFKrhqD114g5YVAimg src=http://news.google.com/news?imgefp=BaS9h1Kz71QJimgurl=s.wsj.net/public/resources/images/OB-CM022_oj_1eq_D_20081008000728.jpg width=80 height=53 alt= border=1brfont size=-2Wall Street Journal/font/a/font/tdtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/7-0fd=Rurl=http://www.thenorthwestern.com/apps/pbcs.dll/article%3FAID%3D/20081009/OSH0101/81003123/1128/OSH01cid=1252219486ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNHY2VgAefuZiZitmP01P--euGtcAQWhere candidates stand: bTaxes/b/abrfont size=-1font color=#6f6f6fOshkosh Northwestern,nbsp;WInbsp;-/font nobrOct 9, 2008/nobr/fontbrfont size=-1Individual income btaxes/b: Wants Congress to extend the Bush btax/b cuts that lowered the top income-btax/b bracket to 35 percent. Current law calls for the income b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/7-1fd=Rurl=http://www.youtube.com/watch%3Fv%3DerspfMkqLN4cid=1252219486ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNG-lWFb7vCHYEXSK6DMWloqTEiyHQVideo: McCain, Obama Differ Dramatically on Health Care/a font size=-1 color=#6f6f6fnobrAssociatedPress/nobr/fontobject width=448 height=356param name=movie value=http://www.youtube.com/v/erspfMkqLN4/paramparam name=wmode value=transparent/paramembed src=http://www.youtube.com/v/erspfMkqLN4type=application/x-shockwave-flashwmode=transparentwidth=448height=356/embed/objectbr/fontfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/7-2fd=Rurl=http://www.hattiesburgamerican.com/article/20081010/OPINION01/810100369cid=1252219486ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNF2VZqQ9-VSnfmlUFgvPtXsmgbkXgWatch McCain speak for himself/a font size=-1 color=#6f6f6fnobrHattiesburg American/nobr/font/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/7-3fd=Rurl=http://www.washingtonpost.com/wp-dyn/content/article/2008/10/08/AR2008100801990.htmlcid=1252219486ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNHY59fJQxwU7UvBbVX8wVcEQmhOswObama Remarks On Economic Downturn, Healthcare Reform/a font size=-1 color=#6f6f6fnobrWashington Post/nobr/font/fontbrfont size=-1 class=pa href=http://news.google.com/news/url?sa=Tct=us/7-4fd=Rurl=http://www.kaisernetwork.org/daily_reports/rep_index.cfm%3FDR_ID%3D54846cid=1252219486ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNEJibaYWs_jktigyfn-UuOI0SIIeQnobrKaiser network.org/nobr/anbsp;- a href=http://news.google.com/news/url?sa=Tct=us/7-5fd=Rurl=http://www.galen.org/component,8/action,show_content/id,68/category_id,0/blog_id,1095/type,33/cid=1252219486ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNEn7lI9ZgdRNzv0E8PGjxeyBOG3LAnobrGalen Institute/nobr/a/fontbr/font class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1252219486hl=ennobrall 1,657 news articles/nobr/a/font/div/font/td/tr/table

Tyson Chandler on Paying Taxes - ESPN

Some NJ towns find way to increase property taxes - Newsday

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/9-0fd=Rurl=http://www.newsday.com/news/local/wire/newjersey/ny-bc-nj--propertytaxes1010oct10,0,3343708.storycid=1256071147ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNHk7AONqMsksZkkK7SV3XDvgi3GOgSome NJ towns find way to increase property btaxes/b/abrfont size=-1font color=#6f6f6fNewsday,nbsp;NYnbsp;-/font nobr12 hours ago/nobr/fontbrfont size=-1TRENTON, NJ - Caps aimed at curbing property btaxes/b are not keeping the rates down for everyone in New Jersey. So far in 2008, 39 towns have asked the b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/9-1fd=Rurl=http://www.courierpostonline.com/article/20081010/NEWS01/810100356/1006/news01cid=1256071147ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNHw8qjvqK4zt_0b30MP-hJTaF-OrwW. Deptford OKs budget with boost in btax/b rate/a font size=-1 color=#6f6f6fnobrCherry Hill Courier Post/nobr/font/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/9-2fd=Rurl=http://www.courierpostonline.com/article/20081010/NEWS01/810100357/1006/news01cid=1256071147ei=XezvSJO4Op_S9QTS0Jy6Bwusg=AFQjCNE6x-bmCT-LLwbeC-0SPQb3moPA5gState grants 38 waivers to cap on property btax/b increases/a font size=-1 color=#6f6f6fnobrCherry Hill Courier Post/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1256071147hl=ennobrall 16 news articles/nobr/a/font/div/font/td/tr/table

Taxes - Google News

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Some Folks Pay A Lot Less Tax Than Others On Very Same Income-Did You Pay Too Much Tax In 2004?
Someone once remarked, "Next to being shot at and missed, nothing is quite so satisfying as an income tax refund." There's no question that saving money in taxes is high on everybody's list of financial priorities, especially small-business owners.

Tax Deductions - Mr. C.P.A. Can I Deduct a Pizza? You Too Can Deduct Your Fun By Using Tax Tips
Recently, I stumbled across a concept that could change your financial life. You can call it a paradigm shift or a new perspective or just a different way to look at things.

I Havent Filed a Tax Return with IRS in Years, What Do I Do?
In elementary school, kids come up with creative excuses why they did not bring in their homework. "My dog ate it" or "It was stolen by invisible space aliens" might be given as a reason why something was not turned in on time.

Another Tax Loophole
Just image, you are a small manufacturing company, business has been good, but yesterday you received a call from a customer who wants 50,000 widgets in 45 days. The customer is a large account and if you turn the business down, he may never call you again.

Corporations Failing To Claim AMT Exemption Overpay Taxes By $11,000
Does your incorporated business pay alternative minimum tax ["AMT]? If so, there is a 93% chance you have been overpaying your taxes by an average of $11,000 a year according to the Treasury Inspector General.The Office of the Treasury Inspector General for Tax Administration was created in 1999 to oversee the IRS.