The Federal, State and Local Governments News is a periodic newsletter with information for federal tax matters for all types of government entities.
IRS Letter 2800C and Employer Federal Income Tax Withholding
IRS sends Letter 2800C, also called a “lock-in” letter, to instruct employers to follow a specific federal income tax withholding arrangement for an employee who doesn’t have enough income taxes withheld from their wages. The employee has 60 days from the date of the letter to discuss the determination with the IRS before the withholding arrangement takes effect. Starting 60 days after the date of the letter, the withholding rate in Letter 2800C is locked in and the employer must begin withholding from the employee at that new rate.
There are two situations in which the employer may withhold at a rate that is different from the rate in Letter 2800C. The first occurs if the employee submits a new Form W-4 with a statement supporting a decrease in their withholding rate and the IRS approves. In this situation, the IRS will inform the employer and the employee with a Letter 2808C. Letter 2808C specifies the changes to the employee’s withholding rate that have been approved by the IRS. The changes in Letter 2808C are effective immediately. There is no 60-day waiting period.
The second situation involves increasing the rate of withholding above what is stated in the “lock-in” letter. This situation occurs if the employee submits a new Form W-4 that results in more withholding than the rate in the “lock-in” letter. In this situation, the employer may accept and process the employee’s request. The employer must disregard any new Form W-4 the employee submits that decreases the amount of withholding. Employers should block the employee’s access to make changes to online Forms W-4 if that access may allow the employee to decrease their withholding below the rate specified in a Letter 2800C.
Employers that do not withhold federal income tax from their employee as instructed by a “lock-in” letter will be liable for paying the additional tax required to be withheld.
Revised Form W-4 and new Income Tax Withholding Assistant for Employers
The Internal Revenue Service has revised Form W-4 and launched two new online tools:
- The Income Tax Withholding Assistant for Employers is a spreadsheet-based tool designed to help employers, especially small businesses, easily transition to the redesigned withholding system (no longer based on withholding allowances), which went into effect on Jan. 1. IRS has posted a webinar, Understanding the 2020 Form W-4 and How to Use it to Calculate Withholding (video, 1:10:42), to the IRS video portal.
- A new and improved Tax Withholding Estimator that incorporates the changes from the redesigned Form W-4, Employee’s Withholding Certificate, that employees can fill out and give to their employers this year. The IRS urges everyone to see if they need to adjust their withholding by using the Tax Withholding Estimator to perform a Paycheck Checkup. Watch our video (2:00) on the IRS Tax Withholding Estimator.
New filing addresses for Form 941, employer’s quarterly federal tax returns
The addresses for where to file paper Form 941 tax returns have changed. The IRS recommends checking any pre-printed envelopes used to mail business returns to ensure the correct address and avoid delays. Or, you may file and pay electronically for the quickest processing.
Recent IRS News Releases
- IRS recommends business owners e-file payroll tax returns
- IRS provides tax inflation adjustments for tax year 2020
- Feb. 20 IRS webinar focuses on gig economy
- IRS urges tax professionals, taxpayers to protect tax software accounts with multi-factor authentication
- Individual Taxpayer Identification Number (ITIN) (video, 2:30)
- How to complete Form W-9 (video, 6:42)
IRS launches Taxpayer First Act webpage and email account
The Taxpayer First Act of 2019 expands and strengthens taxpayer rights. The Act also requires the agency to develop a comprehensive customer service strategy, modernize its technology and enhance its cyber security. The IRS is requesting commentary from taxpayers, including those in the small business and self-employed industries. Those interested in providing feedback on reorganization or other components of the TFA are encouraged to send it to TFAO@irs.gov. For more information about the TFA, visit IRS.gov/taxpayer-first-act.
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The IRS released the 2020 COLA limits for retirement plans and IRAs. See which contribution, deferral and compensation limits have increased for 2020. You may also want to review the tax year 2020 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes.
CP 2100 Notices
The IRS will issue a CP2100 or CP2100A Notice if the payee’s name and Taxpayer Identification Number (TIN) on the information return filed does not match IRS records. This notice informs payers they may be responsible for beginning backup withholding, if they haven’t already done so. Publication 1281, Backup Withholding on Missing and Incorrect Name/TIN(s) (PDF), contains all the information payers need to comply with backup withholding requirements.
These resources will help you avoid receiving a CP2100:
- About General Instructions for Certain Information Returns helps you file correct Forms 1099
- W-9 Saves Time and Money discusses the benefits of securing Form W-9 from service vendors
- TIN Matching Video explains the free Taxpayer Identification Number (TIN) On-Line Matching program offered by the IRS
- Social Security Number Verification Service
- What you need to know about Backup Withholding
Do you hire election workers?
Each election year, thousands of state and local government entities hire workers to conduct primary and general elections. Compensation paid to election workers is income and may be subject to income tax and FICA taxes as well as reporting requirements.
Election Workers: Reporting and Withholding will help you understand their unique reporting and withholding requirements and which election workers may be covered by a Section 218 Agreement.
TIN Matching Program Video
Learn how to: Decrease the number of notices you receive from the IRS. Help perfect W-9 data before filing Forms 1099-MISC. Reduce Backup Withholding problems. And more...
What You Need to Know About Backup Withholding
Learn: What is backup withholding? Who is responsible for backup withholding and how do you report it? Where can you get help?
Taxpayer Identification Matching (TIN) Tools
Learn about: The online TIN Matching Program and the Social Security Number Verification Service
Have questions on whether government entities need a tax-exempt number or a determination letter?
- How can you prove your “tax-exempt” status as a government entity?
- Why don’t government entities require a determination letter from the IRS to secure tax-exempt status?
- What does it mean to be a dual-status entity?
How do I know if someone I hire is an employee or an independent contractor?
Government employers have unique employment tax classification issues. Worker classification can be difficult but our Employer and Pay Related Issues webpages and TE/GE Worker Classification: Employee or Independent Contractor? video will help you by answering common questions. You can also find links to IRS payroll forms and publications that include information specific to government entities in the Public Employer's Toolkit.
IRS Nationwide Tax Forums Offer More than Continuing Education
Educational seminars are just one benefit you get when you attend the 2019 IRS Nationwide Tax Forums. Others include the Case Resolution Program, opportunities to talk with IRS subject matter experts, workshops, and networking opportunities with your colleagues. Register now at www.irstaxforum.com.
Please help IRS spread the word that following major tax law changes, workers should review their withholding to make sure they have the right amount of tax taken out of their paychecks.
Tax Information for Federal, State and Local Governments
Watch the videos on the IRS Video Portal for more information on how federal, state and local government employers can meet their tax compliance requirements.
Taxpayer Identification Number (TIN) Matching Tools
Read about the TIN Matching tools you can use to check the TIN furnished by the payee against the name/TIN combination in the IRS database before filing Forms 1099 and W-2. See Publication 2108-A, On-Line Taxpayer Identification Number (TIN) Matching Program (PDF).
Tax Cuts and Jobs Act
Learn more about the provisions of the Tax Cuts and Jobs Act that affect federal, state and local government employers at IRS.gov/taxreform.
TE/GE Fiscal Year 2019 Program Letter
The 2019 Program Letter (PDF) shares where we are heading in the new fiscal year, including executing compliance strategies, building better processes, and providing useful information and guidance on the Tax Cuts and Jobs Act.
TE/GE Fiscal Year 2018 Accomplishments Letter
The Accomplishments Letter (PDF) lists each TE/GE functions’ accomplishments under our compliance program.
Be prepared to validate your identity if contacting the IRS
Taxpayers and tax professionals will be asked to verify their identities if they call the IRS; having the right information can save you time.
The Dirty Dozen represents the worst of the worst tax scams
Compiled annually, the “Dirty Dozen" lists a variety of common scams that taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes.
TE/GE job announcements
The IRS/Department of Treasury has announced revenue agent (GS 05-11) openings in multiple locations for both Exempt Organizations and Employee Plans. These announcements are open on USAJOBS until January 29, 2020. Apply today to become part of our team.
Election Workers: Reporting and Withholding
Each election year, state and local government entities hire temporary workers to conduct primary and general elections. Election workers are subject to unique reporting and withholding requirements and may be covered by a Section 218 Agreement.
Watch the latest presentations made for federal, state and local governments.
- Payroll Reporting for Election Workers – Learn about reporting and withholding requirements that apply to paid election workers.
- Why File Form 1099-MISC – Learn about the basic filing requirements for reporting payments on Form 1099-MISC.
- Taxpayer Identification Number (TIN) Matching Program (obsolete) – Use TIN Matching to validate whether the TIN and name combinations provided on Forms W-9 match IRS tax filing records prior to submitting related information returns.
- 10 Minutes on Reconciling Forms 941/W-3/W-2 to Gross Payroll – Employers who reconcile payroll can avoid discrepancies by ensuring that employees’ wages and taxes reported to the IRS and the Social Security Administration match.
Find these presentations and more on the IRS Video Portal.
Issue Snapshots are IRS employee job aids that provide analysis and resources along with audit tips or issue indicators for technical tax issues. The most recent Issue Snapshots for federal, state and local government employers are:
- Worker Reclassification - Section 530 Relief – Section 530 of the Revenue Act of 1978 provides businesses with relief from federal employment tax obligations if certain statutory requirements are met.
- Third Party Payer Arrangements - Professional Employer Organizations – An introduction to Professional Employer Organizations and the related employment tax responsibilities.
- Third Party Payer Arrangements - Payroll Service Providers and Reporting Agents – An introduction to Payroll Service Providers and Reporting Agents and the employment tax roles of each.
- Common Paymaster – An explanation of the basic components of a common paymaster arrangement that may enable a related corporation (the common paymaster) to be treated as a single employer for purposes of the FICA and FUTA wage bases.
- Section 530 Relief for Governmental Entities – Section 530 offers taxpayers relief from federal employment tax obligations if certain statutory requirements are met. This relief may apply to government entities depending on if they have a Section 218 Agreement or are a federal agency.
Watch the latest recorded webinars for federal, state, and local governments. Find these presentations and more on the IRS Video Portal.
- Correcting Employment Taxes Using Form 941-X – Learn how to use Form 941-X to correct errors on employee wages; income tax withheld from wages; taxable Social Security wages and tips; taxable Medicare wages and tips subject to Additional Medicare Tax withholding.
- IRS “B” Notices and Backup Withholding (obsolete) – Learn about backup withholding, who is responsible and how it’s reported, plus what to do with a B-Notice.
Early Due Dates for W-2, W-3 and Form 1099-MISC
Employers face a January 31, 2018, due date for filing 2017 Forms W-2 and W-3 with the Social Security Administration. This date applies to both electronic and paper filers.
Form 1099-MISC is due to the IRS and individuals by January 31 when reporting non-employee compensation payments in box 7.
Penalties for failure to file correct information returns or furnish correct payee statements have increased and are now subject to inflationary adjustments. These increased penalties are effective for information returns required to be filed after December 31, 2015.
Form 1098-T Reporting Changes and Limited Penalty Relief for 2017 Returns
Eligible educational institutions are required to report the total amount of payments received for qualified tuition and related expenses from all sources during the calendar year on Form 1098-T, Tuition Statement.
Announcement 2016-42 (PDF) provides relief from penalties under Section 6721 and 6722 to 2017 Forms 1098-T. The IRS will not impose penalties on eligible education institutions that report the aggregate amount billed (instead of amount received) for qualified tuition and related expenses on 2017 Form 1098-T.
Issue Snapshots are employee job aids that provide analysis and resources along with audit tips or issue indicators for a given technical tax issue. The most recent Issue Snapshots for federal, state, and local governments are:
Learn how to perfect your payee data before filing Forms 1099 and W-2 using the IRS Taxpayer Identification Number (TIN) Matching Program and the Social Security Number Verification Service offered by the Social Security Administration.
Many employers use a third party to perform acts such as withholding, reporting and paying federal employment taxes on wages paid for the employer. Learn about some of the issue indicators and audit tips used on audits of these employers.
FICA tax generally applies to wages paid to an employee on account of employment. Learn when the FICA exception applies to an employee who has the status of a student.
Watch the latest videos made for federal, state, and local governments. Find these presentations and more on the IRS Video Portal.
Employers who reconcile payroll can avoid discrepancies by ensuring that employees’ wages and taxes reported to the IRS and Social Security Administration match.
Learn about the special rules for taxing, withholding, and reporting pay for election workers.
Learn when you need to backup withhold, how to report and pay backup withholding to the IRS, how to furnish that information to the payee, and what happens if you don’t backup or withhold when it’s required.
The IRS is providing several types of tax relief for those affected by hurricanes hitting Texas, Florida, Georgia, Puerto Rico and the U.S. Virgin Islands. We’re monitoring the situation closely to resolve potential tax related issues as they’re identified.
Hurricane Harvey victims in parts of Texas have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments. This relief also applies to Form 5500 series returns of eligible taxpayers.
Hurricane Irma victims have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments. This relief also applies to Form 5500 series returns of eligible taxpayers.
The IRS relaxed procedural and administrative rules for retirement plan loans and hardship distributions to certain participants in 401(k), 403(b) and 457(b) plans. Retirement plans can provide this relief for participants who are victims of Hurricane Harvey or for certain family members who lived or worked inside the disaster area.
The IRS announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Irma and members of their families.
Fake charity scams proliferate after disasters like Hurricane Harvey and Hurricane Irma. We encourage you to seek out recognized charitable groups for your donations.