Tax Help Series: What to Do When You’ve Just Been Locked In to Pay Higher Taxes?


Tax payers are being taken by surprise these days because of a new push by the IRS to get payments from people who owe.

They are looking more closely at ways that employees may be abusing tax laws to evade income taxes. More employees are getting Lock-In Letters from the IRS after being audited and employers are directed to lock them in to lower exemptions. These notices are created because of having excessive taxes due for two or more years in a row.

The tax bill happens when there isn’t enough taxes deducted from gross pay and that is where the Form W-4 (Employee Withholding Allowance Certificate) comes in.

The first item they’ll look at is the tax filing status. This is where you claim either Single, Married filing joint or Married filing a separate return.  As a rule of thumb, taxpayers will pay a higher tax when the filing status is single. If your filing status changes during the year, be sure to make the adjustment to have the correct tax calculated.

The next line for review is exemptions. This is another area where abusive practices exist. When it comes to exemptions, the higher the number, the lower the taxes withheld. Audits are showing that employees are increasing their take home pay by claiming more exemptions than they are legally allowed.

Why’d You May Get a Notice

When you fill out the W-4 Form incorrectly, you could end up owing taxes and there is a good chance that you can be audited if this happens for at least two consecutive years. That’s when a Lock In Letter may show up in your mail. Chances are that by the time you receive it, the IRS will have already contacted your employer. This notice explains that they have told your employer to update of your filing status to Single and change your exemptions to 0. The reason is to stop tax evasion and collect their money.

What to Do if You’re Locked In

Once you have a Lock In notice, getting the IRS to reverse the decision is difficult but not impossible. It is important that your response is timely. You’ll usually have a window of 15 days from the date of the letter to reply. In your response, include reasons why you disagree with the decision.

This is just one of the reasons to have a plan to legally reduce the amount of taxes that you pay. Ready to get started? For help putting it all together, schedule a clarity call by completing the form below.