IRS Lock-In Letters: What to Do if the IRS Tells Your Employer to Withhold More Tax

If the IRS believes that your employer is not withholding enough tax from your pay, they will send a "lock-in" letter to both you and your employer. The letter instructs your employer to change your withholding, and it explains the situation to you, the employee. A lock-in letter reduces your take-home pay and thus has an immediate effect on your finances. 

You can protest the change, but you must do so by the deadline. To get help with a lock-in letter now, use TaxCure to search for a local tax professional experienced with employment tax issues or business tax problems. Or keep reading to learn more about what to expect. 

What Is an IRS Lock-In Letter?

A lock-in letter is a notice the IRS sends to employees and employers about withholding more tax from the employee's paycheck. Letter 2800C tells the employer to disregard the W4 received from their employee, and it instructs the employer which filing status and withholding rate to use for future paychecks. Employees receive Letter 2801C which lets them know that the IRS has sent a notice to their employer about the withholding. 

How the IRS Decides to Send Lock-In Letters

After your employer files W2 forms, the IRS runs them through an automated system that does a withholding compliance (WHC) check. If the system detects a problem, it automatically issues a lock-in letter. Typically, this happens in June, but if the W2s were filed after the January 31st deadline, the system will not do the WHC check until the end of the calendar year.

The WHC checks the validity of the Social Security Number on the W2. Then, it looks at whether or not you have an unpaid tax balance. First, it checks if you've filed your current year's return and owe money. If you haven't filed this year, the system looks at whether or not you filed last year's return and owe a balance. Even if you don't owe anything right now, you may receive a lock-in letter if you haven't filed last year's return and the IRS believes that you may owe money. 

What to Expect for Employees

When your employer receives a lock-in letter, they must change your withholding by the first pay period ending on or after 60 days from the notice's issue date. If you submit a new W4 that has a higher withholding rate than shown in the letter, your employer will use that rate. Otherwise, they will use the rate specified in the letter. 

The IRS uses information from your last tax return to determine the withholding rate in the letter, and if they don't have the right information, they will tell your employer to withhold tax as if you are single with no dependents. That's the highest possible withholding. 

If the new withholding rate causes your employer to withhold too much from your check, you will be able to claim a refund when you file your tax return next year, but of course, that doesn't help you right now. To prevent your withholding from increasing, you must contact the IRS within 30 days. 

The IRS should not issue a lock-in letter if your account is marked with any of the following statuses: combat zone, killed in terrorist action, offer in compromise, bankruptcy, criminal investigation case, disaster relief case, or date of death less than 24 months ago. If any of these situations apply and you receive a lock-in letter, let the IRS know that you (or the taxpayer you're representing) should be exempt from the lock-in letter as soon as possible. 

Employer Responsibilities 

As an employer, you cannot ignore this letter. If you receive a lock-in letter and you don't update your employee's withholding, the IRS can hold you personally liable for the taxes that should have been withheld from your employee's paycheck. Let the IRS know if the employee no longer works for you or if they have never worked for you.

You also cannot accept a new W4 from your employee unless the withholding on that form is higher than the withholding noted in the IRS letter. If you have an automated system that allows employees to upload W4 forms, you must block access for the employee on whose behalf you received the lock-in letter. If you cannot block access, let the IRS know ASAP.

Note that the IRS doesn't have access to your employees' W4 when they issue this notice. They are simply looking at the amount withheld on the W2 and the tax due on your employees' last tax return. Due to this, you may occasionally receive a 2800C that has a lower withholding than your employee's new W4 or latest W4. In that case, use the withholding noted on the W4. 

What to Do If You Disagree With the Lock-In Letter

Employees must contact the IRS within 30 days if they disagree with the lock-in. If you don't contact the IRS by this deadline, your employer will start withholding more from your paycheck. Letter 2801C has a phone number that you can call to talk with the WHC. They will help you deal with this issue, but if you have general tax law questions, they will typically route your call to another department. 

Depending on the situation, you can request a release so that the lock-in no longer applies, or you can request a modification to the IRS's suggested withholding. 

How to Request a Lock-In Release

If you believe the IRS issued the lock-in letter incorrectly, you should call and ask for a release. The IRs will generally release the lock-in if any of the following apply:

• The lock-in was issued in error.
• You are insolvent, and the IRS Insolvency Unit instructs the WHC to release the lock-in.
• You filed bankruptcy between the date your case was selected and the date the lock-in letter was issued.
• You have a pending or approved offer in compromise.
• You are not subject to withholding. 
• You're in a combat zone.

You can also request a release if the lock-in has been in place for a while. The IRS will release your lock-in if you have filed and paid all of your tax returns on time for the last three years. Generally, this means filing and paying by April 15. If you requested an extension, you should pay by April 15th and file by October 15th. Note that if your tax return shows a refund, it's considered to be on time even if you filed it late. 

If the IRS releases the lock-in, they will send you Letter 2813C and Letter 2809C to your employer. At that point, you should provide your employer with an updated W4 so they can calculate your new withhold rates.

How to Modify the Withholding on a Lock-In Letter

Your withholding is based on your marital status, your number of dependents, and the tax credits/deductions you claim. If you want the IRS to modify the withholding suggested on the lock-in letter, you will need to provide the agency with these details as they have a direct impact on how much tax you pay.

If you've recently changed your status from single to married, you will need to provide the IRS with your spouse's Social Security Number. Then, the IRS will attempt to get verbal consent from your spouse to use their info to modify the withholding rate. Or they will send your spouse Letter 2805C. If your spouse doesn't agree to be in the WHC program, the IRS will take all of the extra withholding from your wages. This may result in excess withholding, but again, you can claim a refund when you file your tax return. 

You will also need to provide all of the Social Security numbers of the dependents claimed on your tax return. If the IRS cannot verify the SSNs and dependent status through internal sources, you will need to provide birth certificates and Social Security cards. 

You will also need to provide info to support the deductions and credits claimed on your return. This includes child/dependent care expenses, Schedule A deductions if you itemize, IRA contributions, student loan interest, etc. If you contact the IRS to request a modification but you don't provide enough info, the IRS will send you Letter 4243C which gives you two weeks to send in the requested documents.

If the IRS agrees with your modification request, they will modify the withholding based on the information you give them, using a tool called the WHC Withholding Estimator. If they agree to your requested modification, they will send you Letter 2812C. Then, they will send your employer(s) Letter 2808C. If the IRS does not agree with your modification request, they will notify you with Letter 2810C. They will not send a letter to your employer because the info in the original lock-in letter still applies.

What to Expect When You Call the IRS About Your Lock-In Letter

When you (the employee) call the number on your lock-in letter, you will be routed to the WHC department. The person who answers the phone will review your case, and then, they will let you know which information they need to release or modify your request. If you owe a balance, they may be able to help you set up a Streamlined Installment Agreement over the phone. 

If you're currently making payments on an installment agreement and your take-home pay is about to go down due to the new withholding, you should request smaller monthly payments. The IRS phone rep should also be able to help you do that. 

Note that you should not make a frivolous argument when you call the IRs about the lock-in. For example, arguing that you shouldn't have to complete a W4 is a frivolous argument. In these cases, the WHC employee will send your file to the Frivilous Filer Unit in Ogden, Utah.

Employers who call will be able to get basic information about the 2800C lock-in letter, but they will not be able to get any sensitive information about their employee's tax situation. 

Other IRS Notices About Withholding Lock-Ins

Here is a recap of the various notices you or your employer may receive if the IRS wants to update the withholding on your paychecks, as well as some notices that are not mentioned above:

• Letter 2800-C (WHC Lock-in Letter to Employer).
• Letter 2801-C (WHC Lock-in Letter to Employee)
• Letter 2802-C (WHC Compliance Letter).
• Letter 2804-C (Civil Penalty Abatement Denied)
• Letter 2805-C (WHC Lock-in Letter to Employee (Spousal Consent letter)).
• Letter 2808-C (WHC Modified Lock-in to Employer).
• Letter 2809-C (WHC Release of Lock-in to Employer).
• Letter 2810-C (WHC No Change to Employee)
• Letter 2811-C (WHC Penalty Abatement Accepted to Employee).
• Letter 2812-C (WHC Modified Lock-in to Employee)
• Letter 2813-C (WHC Release of Lock-In to Employee).
• Letter 3042-C (Regulatory Authority Information Letter).
• Letter 4074-C (WHC - Reply to Employer Inability to Change Automated W-4 System)
• Letter 4243-C (Withholding Compliance Additional Information Request).

If you have received any of these IRS letters and you aren't sure what to do, contact a tax pro for help. 

How to Avoid Getting a Lock-In Letter in the Future

Make sure that you complete your W4 correctly. If you have more than one job or a spouse, you need to do the extra calculations on the form. If you just put your filing status and the number of dependents, the withholding will still not be correct. Also, make sure that you file your tax returns and pay any tax due on time.