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I received a withholding compliance letter today and it has…

I received a withholding...

I received a withholding compliance letter today and it has me concerned

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

Can this possibly cause me to lose my job?

Accountant's Assistant: Is there anything else important you think the Accountant should know?

I am up to dat with filing my taxes and I am on a payment plan with the IRS. I had updated my w4 a year ago, but I still receive this letter

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Answered in 23 minutes by:
1/4/2018
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,490
Experience: Former IRS Revenue Agent
Verified

Dear Customer,

The withholding compliance letter is issued if the IRS regards ***** ***** don't have enough income tax withheld from your wage income.

Your employer should not make you lose your job over this. This type of required amount or rate of income tax withholding is routine payroll tax matter for many. However, most employees are employed "at will", i.e., the employer can let employee go for whatever reason as long as the reason is not unlawful such as, discrimination for protective class such racial based.

If you file tax return with sufficient income tax withheld for three years, you can request the IRS release you from this compliance program. Below are quotations from the IRS website for your further reference.

Please feel free to follow up.

Regards,

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP, IMTA

https://www.irs.gov/businesses/small-businesses-self-employed/withholding-compliance-questions-and-answers

Q12: As an employee, what happens if the IRS determines that I do not have adequate withholding?

A12: The IRS may direct your employer to withhold federal income tax at an increased rate to ensure you have adequate withholding by issuing a lock-in letter. At that point, your employer must disregard any Form W-4 that decreases the amount of withholding. You will receive a copy of the lock-in letter. You will be given 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 decrease your federal income tax withholding. You should send the Form W-4 and statement directly to the address on the lock-in letter. Once a lock-in letter is issued, you will not be allowed to decrease your withholding unless approved by the IRS.

Q14: How can you be released from the Withholding Compliance Program?

A14: You must continue to file returns and pay your taxes due. If you timely meet all your filing and payment obligations for three consecutive years, you can request that we release you from the Withholding Compliance Program.

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Customer reply replied 7 months ago
Thanks for the response. I just received this letter today. Is it worth fighting this type of letter? I had updated my W4 a year ago to "Married with 1 exemption." The IRS is changing it to "Single and 0 exemptions". I had already significantly reduced my exemptions which should have been enough to offset tax that I may owe. I am not sure how much more tax will be withheld from each paycheck due to this letter, but it can have a big impact on my family and paying bills, etc. I assume this letter is because I owed taxes the last 2 years and I am on a payment plan to pay back those taxes, thus that is why I already updated my W4. I thought I already did things correctly. Thanks!!!

Dear Customer,

The reason the IRS changed the withholding is when you filed your recent tax return(s), e.g., 2016, after your set up your payment plan, you still do not have enough withholding for the future. There is no way you can fight the program at least for now. Of course, we can always use the actual data of your income and expense to change to single and 1 exemption.

From the IRS perspective, our first payment obligation [other than the minimum living expenses allowed by the law for payment plan] is to pay the IRS. What you can do is possibly to apply for another payment plan to lower the payment plan amount. You can use all the IRS debt you have with this new withholding amount and other living expenses to see whether you can reduce your payment plan amount.

We can always try and probably should try. But the 2018 withholding table is supposedly to be less than the 2017 table. So, the effect you will feel now will be less when the new withholding table comes into effect. It will not be easy to argue or calculate before the new withholding table comes into effect.

At least you will have sufficient income tax withheld.

If you have a two income household, what you can do for now is maybe to adjust the income tax withheld on the other W-2.

Regards,

Fiona

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p.s. When I said that to change to single and 1 exemption is when you talk with the IRS. We cannot tell the employer now this change because we are locked into the W-2 the IRS prepared for us.

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p.p.s. I meant we are locked into the W-4 the IRS prepared for us. Regards, Fiona

Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,490
Experience: Former IRS Revenue Agent
Verified
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