Purpose

To provide instructions to agencies regarding the Internal Revenue Service’s notice to change an employee’s withholding tax status. The instructions are sent to OSC in the Internal Revenue Service Letter 2800 (CG), commonly referred to as a “Lock-in Letter”.

Affected Employees

Employees who must have a specific withholding tax status as identified by IRS

Effective Date(s)

Immediately

Background

Effective April 14, 2005, the Internal Revenue Service (IRS) no longer requires employers to submit copies of potentially questionable Forms W-4. The IRS will step up its withholding compliance program by using the information reported on Form W-2 wage statements to ensure that employees have adequate federal income tax withheld from their paychecks.

Previous regulations required OSC to report to the IRS any employee claiming exempt from withholding when wages exceed $200 per week or claiming more than ten (10) allowances.

Employee withholding allowances are still subject to review by the IRS. However, OSC is no longer required to report employees claiming exempt from withholding or claiming more than ten (10) allowances unless directed to do so in a written notice or pursuant to specified criteria set forth in future published guidance from the IRS.

In accordance with the IRS instructions, employees have 30 days to justify their current withholding to the IRS. If OSC does not receive notification from the IRS within 60 days of the issuance of the Lock-in Letter, the agency must withhold tax in accordance with the Lock-in Letter. The agency must keep track of the 60 days in order to know when to implement the Lock-in Letter and update the employee’s tax information in PayServ.

OSC Action

When a Lock-in Letter is received by OSC, a copy will be faxed to the agency payroll officer and a follow-up letter enclosing the original Lock-in Letter will be mailed to the agency.

Agency Actions

As stated in the Lock-in Letter, the employee's withholding change must be made to affect the paycheck issued on or about the required 60-day implementation date.

Agencies should use the following steps to enter the information in PayServ:

1. Open Federal Tax Data page.
   Path: Home>Compensate Employees>Maintain Payroll Data (US)>Use>Employee Tax Data
2. Select the employee record.
3. Insert a new row.
4. Enter the effective date of the tax data change.
5. Special Tax Withholding Status should be “None.”
6. Tax Marital Status is the status specified.
7. Withholding Allowances is the number specified.
8. Go to Lock-in Details and click on Letter Received and enter the number of allowances specified in the Lock-in Letter.
9. Save the page.

Questions

Questions regarding this bulletin may be directed to the Payroll Deductions mailbox.