When an employer receives a lock-in letter from the IRS the employer’s first action is to?
When an employer receives a lock-in letter from the IRS the employer’s first action is to? Bit of a loaded question here. As an aspiring Enrolled Agent and hopefully future Certified Public Accountant, I must say that a Lock in Letter from the IRS is very well, as is someone having to check that box on bank account setup forms that ask whether someone is subject to backup withholding. In this blog post, I’ll tell you why you should always be honest on your W-4 Withholding form, and of why an IRS Lock in Letter is likely something to avoid. As always, for more details and information on all things business and finance, be sure to read on or subscribe to our blog for additional details and information!
Other topics on the IRS and the US tax code that we will cover on this website include the following:
How to research complex tax matters
How to pass Enrolled Agent Exam
Pass the CPA Exam
My journey of becoming a CPA
BA in Accounting from WGU
Masters in Accounting from WGU
MBA from WGU
How a CFP Designation helps you in accounting
Do you need to use MACRS depreciation when depreciating a home?
And much more, read on or subscribe to our blog for additional details and information.
What is an IRS Lock in Letter, And When is One Issued?
A quick 30,000 foot view answer to this question, is that a Lock In Letter is Issued When someone understates their withholding allowances on form W-4. This typically must be by a pretty substantial amount in order to create back-up withholding from the IRS like this, which is what a Lock in Letter is for. An example of this is say we have someone who is trying to play games with their form W-4 in order to have less money withheld from their paychecks, so that they have more cash flow, for spending, investment, or what have you. If the IRS catches onto this, and finds out that you have been substantially understating your withholding allowances on your form W-4, then they will issue a Lock in Letter, both to you, AND worse than that, to your employer, compelling them to withhold your checks at a higher rate, this is one major reason for IRS backup withholding.
What Are Withholding Allowances on Form W-4?
Form W-4 is where you tell employers your name, DOB, SSN, and essentially, what your dependent write offs and Standard Deductions will likely look like, to the best of your knowledge, via withholding allowances. Claiming 0 allowances gives a higher withholding amount than if you claim one allowance, as is typical of single filers, and typically would be done when one expects to claim the full standard deduction. Increasing this to 2 or more withholding allowances, as high as 3, should be reserved for when you have more dependents or joint filers etc. with additional deductions, and will adjust your withholdings accordingly.
How I Have Learned The Tax Code As Much As I Have So Far, Accounting, Tax and Finance
Not that this is necessarily something worth bragging about, but I would say that I have a pretty substantial amount of tax knowledge for someone who has never worked in the field of tax before. Even for someone in the field of Financial Planning, and for someone who aspires to be a CPA and an EA, I would say I definitely have a pretty solid background. I cannot wait to test this at an Accounting firm in what I hope is Christmas time this year. I know that I can at least give some moderately advances tax returns, like S-Corp returns, etc. a shot, and that I could talk to clients on the phone about their taxes no problem, will report how this goes!
Final Thoughts On When an employer receives a lock-in letter from the IRS the employer’s first action is to?
Essentially when this happens the first thing the employer does is to increase your withholding amounts to whatever the IRS specified. Your W-4 is essentially replaced with whatever the IRS sent them in the Lock in Letter, and they are forced to comply. Hence, always make sure that you are putting down the right number of withholding allowances, and do not try to game the system. For more details and information on all things business and finance, read on or subscribe to our blog for additional details and information.
Disclaimer: The opinions and documentation contained within this article and on this blog are the sole property of inflationhedging.com and are not to be copyrighted or reproduced in any manner, else legal action within the rights of the United States legal code could be use to obtain recompense. All articles and blog posts are the sole opinions of the writers of the blog, and are not necessarily in line with what exactly will work for you, you should consult a CPA, Tax Professional, or Financial Professional to determine what exact financial needs are in line with your interests. Also, from time to time, certain links on this website will be used to generate affiliate commissions, in order to support the health and growth of our website, health and business.