The IRS Withholding Compliance Program ensures that an employee has the correct amount of federal income tax withheld from his/her wages. If an employee’s withholding is insufficient, the IRS will issue a “lock-in” letter to them to specifying the correct withholding amount
You will be provided a period of time before the lock-in rate is put in effect to submit for approval to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would reduce your federal income tax withholding. After issuing a lock-in letter, you will not be allowed to lessen your withholding until it will not be approved by the IRS.
IRS Withholding Compliance Program
The IRS Withholding Compliance Program was created to assist increase the effectiveness of IRS actions on under withheld tax compliance cases. The Withholding Compliance Program examines wages and tax information on past W-2s to decide if individual taxpayers have had their taxes correctly withheld.
The main goal of the program is to ensure that employees are satisfying their income tax obligations and to assist employees avoid owing a large amount of tax at the last of the year by making sure their withholdings are accurate throughout the year.
When it is suspected an employee’s wages are being under withheld, the IRS will provide “lock-in” letters, according to the Withholding Compliance Program.
Is the Withholding Compliance Program beneficial?
The IRS Withholding Compliance Program can be beneficial because of various reasons. The main reason is that it helps to ensure that employees are withholding the correct amount of federal income tax, which can stop large tax bills and penalties at the end of the year.
By having the right amount of tax withheld, employees can easily manage their finances and can avoid unexpected tax liabilities. This program provides clear instructions and assistance for both employees and employers, making it easy to handle withholding issues.
The Withholding Compliance Program and subsequent “lock-in” letters have shown great success in the past few years. According to the survey conducted by the Treasury Inspector General for Tax Administration, it is stated that the IRS collected an additional $192 in withheld income after issuing 13,044 “lock-in” letters to employers and taxpayers in 2006.
How can you be released from the Withholding Compliance Program?
You just need to continue to file your returns and pay your due taxes. Keep in mind that If you timely fulfill all your filing returns and payment obligations for three consecutive years, you can request the IRS to release you from the Withholding Compliance Program.
The IRS will review your request, if it will be based on the accurate details then you will be released from the Withholding Compliance Program.
If my employer no longer has to routinely submit Forms W-4 to the IRS, How will this affect me as an employee?
There are no changes occurring in the requirement that employees have adequate income tax withholding. The IRS Tax Withholding Estimator is available for employees to find out the proper amount of federal income tax withholding.
Another useful resource, Publication 505, Tax Withholding and Estimated Taxes is also available on the IRS official website or you can also obtain it by calling 800-TAX-FORM (800-829-3676).
Employees who have inadequate income tax withholding are subject to penalties. The IRS will be making more effective use of information obtained from its records along with details reported on Form W-2 wage statements to see that employees have enough federal income tax withheld
What do you do if an employee hands you a substitute Form W-4?
If you are an employer then you need to refuse to accept a substitute form developed by an employee and the employee submitting such form will be considered failure to furnish a Form W-4. In such a case, you must inform the employee that you will not accept this type of form.
You can also offer the employee an opportunity to fulfill an official Form W-4 or a substitute Form W-4 completed by you. Until the employee submitted a new Form W-4, the employer must withhold from the employee as from a single individual with no adjustments to withholding; however, a previous Form W-4 is in effect for the employee, the employer must continue to withhold according to the past Form W-4.
As an employer, a substitute withholding certificate generated by you can be utilized in place of the official Form W-4, if you offer all the tables, necessary instructions, and required worksheets contained in the Form W-4 in effect at that time to the employee.