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How to Handle IRS Lock-In Letters

Author: Alice Gilman

When an employee provides an employer with a completed and signed IRS Form W-4, the employee may claim on the form any level of withholding adjustments or marital status, or even complete exemption from income tax withholding. However, if the IRS finds that the employee is seriously underwithheld, it may issue a lock-in letter to the employer specifying the employee's filing status and providing withholding instructions for the employer to follow. An employer has specific duties to an employee and the IRS once it receives a lock-in letter.

Note: An employer that completes a Form W-4 for an employee using the optional computational bridge should retain the employee's pre-2020 Form W-4 in case the IRS issues a lock-in letter for the employee. The employer-completed computational bridge Form W-4 is overridden if the employee refiles Form W-4 in response to a lock-in letter. See How to Use the Computational Bridge and Percentage Method Withholding Tables With Pre-2020 Forms W-4.

The following steps will help an employer fulfill its lock-in-letter duties.