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Welcome to this IRS presentation on lock-in letters. This material isn’t official guidance.

In this presentation we’ll cover: What is a lock-in letter? When a lock-in rate may stop? What will happen if you don’t lock-in the wthholding rate. Here’s the scenario.

The IRS sends you Letter 2800C, WHC Lock-in Letter to Employer, when an employee didn’t have enough federal income withheld.

The lock-in letter tells you to withhold at a specific rate from an employee’s wages.

You’ll also receive the employee copy of the letter. You must give it to the employee within 10 business days, unless they don’t work for you anymore. If they return to work within 12 months of you receiving the letter, you should begin withholding income tax from the employee’s wages based on the withholding rate in the letter.

You have 60 calendar days after the letter’s date to start withholding at the specified rate. This gives the employee time to communicate with the IRS, as is explained in their copy of the letter.

The IRS holds employees responsible for accurately reporting their withholding status to their employer. The IRS notifies employees in three ways: Letter 2801; CP30 Notice called “Penalty to employees for under withholding of income tax from wages” or Employee copy of Letter 2800C. These letters notify the employee that the IRS has determined they have insufficient income tax withholding and are subject to penalties.

Encourage the employee to contact the IRS to request a modification to the lock-in letter before their withholding is locked in.

If the modification request is approved, the IRS will issue a modification letter to you, letter 2808C.

Letter 2808C comes with instructions for you to withhold at a specific rate. The modification is effective immediately - not 60 days later.

Two points to emphasize: First, once a lock-in rate is in effect, you can’t decrease withholding unless approved by the IRS.

To approve, the IRS requires the employee to have been compliant with required returns, taxes, penalties and interest for three consecutive tax years.

Second, if you don’t withhold federal income tax from the employee as instructed by the letter, you’ll be liable for paying the additional tax required to be withheld.

Sometimes, an employee affected by a lock-in letter will submit a new W-4 to an employer to initiate modification of the locked-in rate.

If the employee requests more withholding than specified in the lock-in letter, you must honor the Form W-4.

But, if the new Form W-4 withholds less than required in the lock-in letter, you must withhold based on the lock-in letter.

If you offer your employees the ability to update their Form W-4 electronically, you must block access to decrease withholding for any employee subject to a lock-in letter. Remember: Once the lock-in rate is in effect, you can’t decrease withholding unless the IRS notifies you to do so.

If you don’t withhold federal income tax from the employee as instructed by the lock-in letter, you’ll be liable for paying the additional tax required to be withheld. If the employee becomes eligible for a modification to the lock-in letter rate, the IRS will send you Letter 2808C. Letter 2808C specifies the changes that become effective immediately upon the receipt of that letter. You can find more questions and answers on withholding compliance at IRS.gov.

Type “withholding compliance” into the IRS.gov search box. Thanks for listening!