The IRS said it is redesigning its lock-in letters to follow changes in withholding calculations created by the Tax Cuts and Jobs Act (TCJA). The TCJA changed withholding calculations by eliminating allowances, which caused the IRS to redesign the Form W-4, Employee’s Withholding Certificate. Effective January 1, 2020, the TCJA mandated withholding calculations to consider credits, adjustments, and deductions to factor a dollar value.
The redesigned lock-in letters will provide employers with the withholding status and withholding rate and any annual reductions to withholding or additional amount to withhold per pay period as a dollar value.
New Format for Withholding Instructions
Here is the format for the withholding instructions in the redesigned 2800C lock-in letter:
- Withholding status (filing status): Single
- Withholding rate: Form W-4, Step 2(c), checkbox (higher withholding rate)
- Annual reductions from withholding (Form W-4 line 3): $0.00
- Other income (Form W-4 line 4(a)): $0.00
- Deductions (Form W-4 line 4(b)): $0.00
- Additional amount to withhold per paycheck (Form W-4 line 4(c)): $0.00
Withholding Procedures Until Lock-In Letters Are Updated
Until the letters have been updated, the IRS said employers and payroll service providers will use the allowance method as directed in the lock-in letters they receive to calculate employees’ withholding per pay period.
Employers that have already converted their payroll systems to the new 2020 withholding methods can input values to Step 4(a) and 4(b) as follows:
- Step 4(a): $12,900 for Married, Filing Jointly or $8,600 for all others; and
- Step 4(b): Number of allowances, as specified in the letter, multiplied by $4,300.
To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!
Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Payroll Information Resources for the APA.
