Communications from government—federal, state, or local—can be scary. Often they include language such “penalties,” “fines,” and “further action.” It’s costly for small business owners to run to accountants, attorneys, and other professionals for advice. Learn what the correspondence means so you can determine whether you can handle matters yourself or need the help of an expert.
Letters regarding wage 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:
- If the employee submits a new Form W-4 with a statement supporting a decrease in their withholding rate and the IRS approves. The IRS will inform the employer and the employee with a Letter 2808C, specifying 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.
- If the employee submits a new Form W-4 that results in more withholding than the rate in the “lock-in” letter. The employer may accept and process the employee’s request and block the employee’s access to make changes to online Forms W-4 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. For more information, look at IRS Q&As.
Garnishment order
Employers may receive a letter from a court advising that funds be withheld from an employee’s paycheck and deposited with the court. Typically, this is done to help satisfy an employee’s child support obligations. If an employer fails to follow the garnishment order, a court could enter a default judgment against the employer for the full amount of the employee’s outstanding debt.
Find more about garnishment from the U.S. Department of Labor’s Employment Law Guide.
ACA letters
Applicable large employers (ALEs) are subject to the employer mandate under the Affordable Care Act to provide affordable coverage to full-time employees or pay a penalty. Due to information reported on Form 1095-C to each employee and Form 1094-C transmittal to the IRS, an employer is notified in Letter 226J of potential liability for the shared responsibility payment. This letter should be reviewed to confirm that the information the IRS has is correct. The employer must complete the response form and submit it to the IRS by the date stated in the latter. If, for example, the information is wrong, you can provide the IRS the necessary information to correct the error.
There are a series of ACA letters. Find more information here.
OSHA complaint
OSHA is a federal agency that oversees health and safety standards in the workplace. You may receive a phone call or fax, followed up by a letter, that an employee (named or unnamed) complained to OSHA about a safety concern. Review the letter to see if the complaint is legitimate. Perhaps you do have a safety hazard that you can correct. Or perhaps it’s just a disgruntled employee trying to make trouble for you. The minimum fine for not correcting a violation is $5,000.
You have only 3 days (not necessarily business days) after you receive the complaint to respond to OSHA (details of where to do this are in the complaint). Find more information from the National Law Review on how to respond to an OSHA complaint in the wake of COVID-19.
Final thought
When you receive any communication from the government, don’t ignore it. If you’re unsure how to proceed, don’t hesitate to ask a professional. The fee likely will be less than the penalties you could face for not handling things correctly.
As Derek R. Audette, a Canadian musician, poet, and author says: “Whether you actually can or can’t fight city hall is of little relevance. Either way, when the need arises, you must!”
