Employers often ask employees to designate the amount of tax withholdings for paychecks. Occasionally, employees will fail to withhold a sufficient amount in the eyes of the IRS. The IRS will then send a "lock-in" letter on the amount to be withheld. What's an employer to do?
Withholdings
Four taxes must be withheld from employee paychecks ? Medicare, Social Security, Federal Income and State Income tax. The Medicare tax is set at roughly 1.5 percent of salary while social security is set at 6.2 percent. The withholding for federal and state income tax, however, is subject to adjustments made by employees. The amount of tax required to be withheld by the IRS requires a calculation beyond the scope of this article, but you can look to the "Employer's Tax Guide" on the IRS web site.
If an employee claims excessive deductions that result in insufficient withholdings, the IRS may respond. The typical response is to send an employer a "lock-in" letter.
The lock-in letter tells the employer to increase the amount of withholding tax of the employee. The IRS will actually specify the maximum number of withholding exemptions the employee can claim. The more exemptions claimed, the less tax withheld in each paycheck. The IRS will also send a copy of the correspondence to the employee.
As an employer, you must comply with the IRS lock-in letter. The IRS will designate a specific compliance date. Better to have died a small child than fail to comply with the letter. Failure to comply will result in the tax liability transferring from the employee to the employer. The employer can also expect the unwanted attention of IRS auditors. In short, make absolutely sure you comply with the lock-in letter.
What should you do if you receive a lock-in letter, but the employee no longer works for you? You must send a written response to the IRS office listed in the correspondence. The response must state the employee no longer works for you and the last date of employment to the best of your knowledge.
What should you do if the employee refuses to comply with the lock-in letter? You must comply with the lock-in letter. The employee's wish is irrelevant and you have no discretion in the matter. Instead, the employee should be told to contact the IRS directly and request a modification to the lock-in letter.
Lock-in letters can cause stress in employee-employer relationships. Unfortunately, there isn't much you can do about.
Richard Chapo is with http://www.businesstaxrecovery.com - recovering overpaid taxes for small businesses. Visit our article section - http://www.businesstaxrecovery.com - to read more tax articles.
"Depreciation." For business owners, this word is the one most... Read More
The means and types of businesses have transformed with advent... Read More
How about a Tax Tip?As we all know Taxes are... Read More
If your business has employees, you must pay employment taxes.... Read More
Small Businesses Filing Amended Federal Tax Returns to... Read More
We all love to criticize the IRS, don't we? And... Read More
So, you were pleasantly surprised to learn that you are... Read More
In trying to comply with tax laws for your e-business,... Read More
Estate taxes. It's not enough to simply know they exist,... Read More
Hit a big one? With more and more gambling establishments,... Read More
Employers often ask employees to designate the amount of tax... Read More
In a past article I relayed the plight of the... Read More
The U.S. Department of Agriculture estimates that it costs nearly... Read More
Tilting the Tax Laws in Your Favor.In order to accelerate... Read More
One can never underestimate the enthusiasm that politicians have for... Read More
Self-assessment relies on taxpayers voluntarily meeting their tax obligations. This... Read More
If you are environmentally conscious and purchase a 2005 Ford... Read More
Most people trying to make a crust online (or offline... Read More
The end of tax filing extensions is quickly approaching. What... Read More
IRS Tax forms can be confusing.Am I a 1099 or... Read More
Marketing is a necessary expense in running practically any business... Read More
Deducting Your Auto ExpensesAuto deductions are a very complex topic.... Read More
Beware of advertisements that claim to settle tax debts for... Read More
The Sarbanes-Oxley Act, also called the Public Company Accounting Reform... Read More
Recently, I stumbled across a concept that could change your... Read More
If your identity is stolen, your finances can quickly become... Read More
Yes, the tax season is upon with the first filing... Read More
Once a year Canadian taxpayers are required, by law, to... Read More
If you have employees, you are responsible for paying a... Read More
Donating your used car to charity is a win-win situation;... Read More
We all love to criticize the IRS, don't we? And... Read More
While accountants are reaching for aspirin, millions of Americans are... Read More
How about a Tax Tip?As we all know Taxes are... Read More
The powers of Congress, and the limitations set upon those... Read More
Anyone who is closely related to an accountant knows that... Read More
Recently, I stumbled across a concept that could change your... Read More
Statistics for IndividualsUnfortunately, the IRS increased its rate of auditing... Read More
How Home-Based Businesses Can Avoid Giving Uncle Sam... Read More
NOTE: This is the first in a series of 5... Read More
According to the IRS, taxpayers underpay their taxes by some... Read More
Strategic planning throughout the year results in a minimal tax... Read More
As everyone in the U.S. knows, we have just passed... Read More
Someone once said, 'the best way to calculate your taxes... Read More
No one likes paying tax. Everyone understands that tax is... Read More
Many taxpayers are confused about how long they should keep... Read More
If you have recently started an Internet or home business,... Read More
Let's assume that you would like to begin saving for... Read More
For many business owners the answer to this quandary is... Read More
As teachers and students head back to school following a... Read More
IRS Tax forms can be confusing.Am I a 1099 or... Read More
Tax |