Special edition of e-News for Payroll Professionals – Redesigned Withholding Compliance Lock-In Letters 2800C and 2808C coming soon

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Issue Number: 2020-03

The Tax Cuts and Job Act of 2017 (TCJA) changed withholding calculations by eliminating allowances, and in response, the IRS redesigned Form W-4, Employee’s Withholding Certificate. The Service is also redesigning the Withholding Compliance Lock-in Letters to reflect these changes.

Effective January 1, 2020, TCJA mandated withholding calculations to consider credits, adjustments and deductions to factor a dollar value. The allowance withholding method and the TCJA withholding method use the same tax tables. For now, employers and payroll providers will use the allowance method as directed in the letters they receive to calculate employees’ withholding per pay period. After the lock-in letters redesign is complete, they should follow the new TCJA directions.

Withholding Compliance Lock-In Letters 2800C and 2808C are being redesigned to include the new lock-in rate instructions. Instead of providing the employer with the number of allowances by which withholding would be reduced, the letters will provide employers with the withholding status and withholding rate and any annual reductions to withholding or additional amount to withhold per pay period as a dollar value.

The format shown below is what the withholding instructions will look like on the redesigned 2800C lock-in letter:

Withholding Status (Filing Status): Single
Withholding rate: Form W-4, Step 2(C), Checkbox (higher withholding rate)

Annual reductions from withholding (Form W-4 line 3): $0.00
Other income (Form W-4 line 4(a)): $0.00
Deductions (Form W-4 line 4 (b)): $0.00
Additional amount to withhold per paycheck (Form W-4 line 4(c)): $0.00

The format shown below is what the withholding instructions will look like on the redesigned 2808C modification letter:

Withholding Status (Filing Status): Single (or Married or Head of Household)
Withholding rate: Standard withholding rate

Annual reductions from withholding (Form W-4 line 3): $0.00
Other income (Form W-4 line 4(a)): $0.00
Deductions (Form W-4 line 4 (b)): $0.00
Additional amount to withhold per paycheck (Form W-4 line 4(c)): $0.00

Until the redesigned Letters 2800C and 2808C are cleared for publishing, the IRS Withholding Compliance Unit will continue to issue the Withholding Compliance Lock-in Letters using the old allowance withholding method and employers should follow the letters as directed.

Employers who have already converted their payroll systems to the new 2020 withholding methods can input values to Step 4(a) and 4(b) as follows:

4(a) – 12,900 for MFJ or 8,600 for all others; and 4(b) – Number of allowances, as specified in the letter, multiplied by 4,300.

For additional information see the:

• Pub 15-T, Worksheet 1, Employer’s Withholding Worksheet for Percentage Method Tables for Automated Payroll Systems
• Updated Withholding Compliance Questions and Answers
• Income Tax Withholding Assistant for Employers to help with calculations
• Understanding the 2020 Form W-4 and How to Use it to Calculate Withholding webinar