How to Request an IRS Lock-In Letter Removal
Learn the formal process for removing an IRS lock-in letter by demonstrating sufficient withholding and submitting a request to regain control of your payroll taxes.
An IRS lock-in letter establishes a mandatory federal income tax withholding amount for an employee who has significantly underpaid their taxes. This measure overrides the employee’s own withholding preferences submitted on their Form W-4.
Understanding the IRS Lock-In Letter
The IRS lock-in letter is a formal notice sent to an employer (Letter 2800C) with a corresponding letter sent to the employee (Letter 2801C). This situation arises when an individual’s Form W-4 claims are not sufficient to cover their annual tax obligation. The IRS identifies this discrepancy, often after a tax return is filed showing a large balance due.
Upon receipt of the lock-in letter, an employer is legally obligated to disregard the employee’s current Form W-4. The IRS determines the rate, which is often set to single with no dependents, based on the employee’s most recent tax return to ensure sufficient taxes are withheld. The employer must implement this new withholding rate within 60 days from the date of the letter.
Preparing Your Request for a Modification or Release
To initiate a change to a withholding lock-in, you must prepare a new Form W-4, Employee’s Withholding Certificate, and a detailed written statement. A full release from the lock-in program is granted only after a period of sustained tax compliance, which generally requires a record of filing and paying taxes on time for the preceding three years.
A correctly filled-out Form W-4 is a part of your request. The most reliable way to achieve this is by using the IRS’s online Tax Withholding Estimator tool. This tool uses your expected income, deductions, and credits to recommend the precise way to complete your Form W-4. You should use the results from the estimator to fill out a new paper Form W-4, which will be submitted with your request.
Your written statement should clearly and concisely explain the circumstances that led to the past under-withholding. It is important to take responsibility for the error and then detail the changes in your financial situation that will prevent it from recurring. For example, you might explain a change in employment, a spouse starting a new job, or the cessation of self-employment income.
If your situation warrants it, include supporting documentation with your statement. For instance, if you have started making quarterly estimated tax payments to cover income from other sources, provide copies of the canceled checks or electronic payment confirmations.
Submitting Your Request to the IRS
The first step is to call the IRS Withholding Compliance unit using the phone number on your Letter 2801C. A representative can provide the most current instructions for submitting your request.
The package should contain your newly completed and signed Form W-4, your signed written statement explaining your request, and a copy of the lock-in letter notice you received. Including a copy of the letter helps the IRS quickly identify your case and route your request appropriately.
After submitting your request, you should anticipate a processing period that can take several weeks. If they approve a new, more appropriate withholding rate, they will issue a Letter 2808C to your employer with the modified rate. If they approve a full release from the program, they will send a Letter 2813C. You will receive a copy of any letter sent to your employer, and if the request is denied, the IRS will inform you of the reason.
Managing Your Withholding After the IRS Responds
If the IRS issues a modification (Letter 2808C), your employer will adjust your withholding to the new rate specified by the IRS. This rate remains mandatory, but it will be more aligned with your actual tax liability than the initial lock-in rate. You cannot submit your own Form W-4 at this stage.
If the IRS issues a full release (Letter 2813C), your employer is authorized to accept a new Form W-4 from you. It is important to submit a new, accurately completed Form W-4 to your employer to ensure you do not face under-withholding issues in the future.
To prevent future under-withholding issues and the possibility of another lock-in letter, it is good practice to review your tax withholding annually. A yearly check-up, or one following any major life event like marriage, the birth of a child, or a significant change in income, helps ensure your withholding remains accurate. Using the IRS Tax Withholding Estimator periodically can help you maintain the right balance and avoid unwelcome tax surprises.