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. Whats an employer to do?
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 Employers 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...