Got a letter from the IRS? Need to make changes to payroll?
On July 9, 2020, the IRS sent out a newsletter announcing a new letter which will change things if you have payroll. Letter 2800C, aka the “lock-In” letter, instructs employers to follow a specific federal income tax withholding arrangement for an employee who doesn’t have enough income taxes withheld from their wages. This letter gives the employee 60 days from the date of the letter to discuss the determination with the IRS before the withholding arrangement takes effect. After the 60-day period. The withholding rate in Letter 2800C is locked in and the employer must begin withholding from the employee at that new rate.
What does this mean?
As an employer may you receive a 2800C form for one of your employees. You may receive two forms, one for you and one for your employee. You have 10 days to give your employee their form, if they still work for you.
If you receive this form, it means your employee did not fill out their W4 Form in a way deemed satisfactory by the IRS and you must withhold the corrected amount provided by the 2800C form. Your employee has 60 days to request the IRS to grant them a waiver from this new withholding amount. If this happens you, as the employer, may continue withholding as stated on their original W4 form.
Your employee can request this waiver in two ways: submitting a new W4 which gets approved by the IRS or submit a new W4 with a withholding rate higher than the “lock-in” letter.
Regardless of the situation with your employee, it is your responsibility as the employer to follow the IRS guidance and ensure your payroll team (whether outsourced or inhouse) is up to date on all changes.
The Too Long Didn’t Read
Employers may see a 2800C form from the IRS. This form states you must start withholding more federal income tax from the employee’s paycheck. As the employer, you have 10 days to give the employee part of this form to your employee. The employee has 60 days to request a waiver on this new withholding amount. It is your responsibility to follow IRS guidance and ensure you are withholding the correct amount.
If you or your employees have more questions you can view the IRS video here or read their Withholding Compliance Q&As here. Remember, it is your responsibility as a business owner to make sure your business is following IRS guidance and to keep your accounting team informed of any changes in your business.