State Agencies Bulletin No. 2031

Subject
Changes to the Federal Tax Data Page, Including New Lock-In Letter Fields
Date Issued
May 31, 2022

Purpose:

The purpose of this bulletin is to inform agencies of the revision made to the Federal Tax Data page to support the redesigned Lock-in Letter for Federal Form W-4 version 2020 or later.

Affected Employees:

All employees who have a Federal Form Version W-4 – 2020 or later and for whom an IRS Lock-in Letter, Lock-in Adjustment Letter, or Lock-in Release Letter is received or on file are affected.

Background:

Withholding Compliance Lock-In Letters 2800C (Lock-in Letter) and 2808C (Lock-in Letter Adjustment) are redesigned to include the new Lock-in rate instructions and reflect the changes made to Form W-4 in 2020. Instead of restricting the number of withholding allowances, the letters will provide employers with the withholding status, withholding rate and any annual reductions to withholding or additional amount to withhold per pay period.

Lock-in Letters are issued by the IRS when they determine that an employee is either not entitled to claim exempt status or is not entitled to claim more than a specific number of withholding allowances (applicable to Form W-4 2019 or earlier).

The Lock-in Letter informs the employer of the minimum withholding allowed. Employers failing to honor the IRS Lock-in requirement could face penalty and may be liable for any taxes not withheld from the employee.

OSC will process all Lock-in Letters received directly from the IRS and subsequently notify those agencies with impacted employees.

Effective Dates:

The changes described in this bulletin are effective immediately.

Eligibility Criteria:

All employees for whom an IRS Lock-in Letter, Lock-in Adjustment Letter, or Lock-in Release Letter is received or on file.

OSC Actions:

OSC has updated the Federal Tax Data page and Lock-in Letter fields in PayServ as follows:

  • Federal Form Version – A drop down list box has replaced the radio buttons for the Form Version.
screenshot of Federal Form Version field
  • Lock-in Letter Details – New Fields for W-4 2020 or Later forms include:
    • Withholding Status
    • Withholding Rate
    • Annual Withholding Reductions
    • Other Income
    • Deductions
    • Additional Amount
screenshot of Lock-In Letter Details

These fields will only appear if the Letter Received checkbox is checked.

Additionally, Federal Withholding Elements are systematically limited by the Lock-in Letter details. Values that do not adhere to the Lock-in Letter will trigger error messages.

  • Upon receipt of a Lock-in Letter (IRS Form 2800C), Lock-in Adjustment Letter (IRS Form 2808C), or Lock-in Release Letter (IRS Form 2809C) OSC will continue the following process:
  • Notify the agency Payroll Officer of the change via email from the Tax and Compliance mailbox.
  • Provide the agency Payroll Officer with a copy of the Lock-in Letter to be retained in the employee’s record and a copy to be provided to the employee.
  • Review the Lock-in Letter and determine if it’s new, an adjustment, or a release.
  • Make the appropriate changes in PayServ per the IRS Lock-in Letter.
    • Check the Letter Received Box.
    • Enter Withholding Status per the Lock-in Letter instructions.
    • Enter Withholding Rate per the Lock-in Letter instructions.
    • Enter Annual Withholding Reductions, if any, per the Lock-in Letter instructions.
    • Enter Other Income, if any, per the Lock-in Letter instructions.
    • Enter Deductions, if any, per the Lock-in Letter instructions.
    • Enter Additional Amount, if any, per the Lock-in Letter instructions.

Agency Actions:

Agencies must:

  • Inform the employee of the Lock-in Letter
  • Provide the employee with a copy of the Lock-in Letter.
  • Retain a copy of the Lock-in Letter in the employee’s record.
  • Not make any updates to any of the fields under Lock-in Letter details (grayed out).
screenshot of Lock-In Letter Details
  • Agencies are permitted to add a new row to the Federal Tax Data page if they receive a Form Version W-4 for 2020 or later only. Any existing Lock-in Letter fields will be carried forward.
  • Agency users will receive an error message if they attempt to update the Federal Withholding Elements to a value that does not adhere to the minimum required in the Lock-in Letter.
  • If Agencies receive one of the new error messages (listed below), they should notify the employee that any Form W-4 changes that reduce the amount of federal taxes withheld cannot be entered when a Lock-in Letter is in place.
    • "You have attempted to change Tax Marital Status, a value that is currently restricted. Tax Marital Status changes are not permitted when there is a Lock-in Letter on file.”
    • “Federal Dependent Amount exceeds the IRS limit. Enter a value less than or equal to “Lock-in Letter amount”. You have entered a value higher than that allowed by the IRS limit. Enter a value that is less than or equal to the limit.”
    • "Federal Deductions exceeds the IRS limit. Enter a value less than or equal to “Lock-in Letter amount”. You have entered a value higher than that allowed by the IRS limit. Enter a value that is less than or equal to the limit.”
    • “Multiple Jobs or Spouse Works is below the IRS limit. Select the Multiple Jobs or Spouse Works check box. You have entered a value less than that allowed by the IRS limit. Select the Multiple Jobs or Spouse Works checkbox in accordance with the IRS limits.”
    • “Federal Other Income is below the IRS limit. Enter a value greater than or equal to “Lock-in Letter amount”. You have entered a value less than that allowed by the IRS limit. Enter a value that is greater than or equal to the IRS limit.”
    • "Federal Extra Withholding is below the IRS limit. Enter a value greater than or equal to “Lock-in Letter amount”. You have entered a value less than that allowed by the IRS limit. Enter a value that is greater than or equal to the IRS limit.”

New York State Payroll Online (NYSPO) Impact:

Employees who have an active Lock-in Letter on file will be prohibited from making any federal tax withholdings changes via NYSPO. These employees will receive a warning when updating withholdings and will only be able to update their state and local tax withholdings via NYSPO.

Users may refer to the NYSPO Troubleshooting Guide, located at https://www.osc.state.ny.us/files/state-agencies/payroll/pdf/troubleshooting-guide.pdf, should they encounter any issues accessing or using NYSPO.

Questions:

Questions regarding this bulletin may be sent to the Tax and Compliance mailbox.