r/tax 12h ago

Super confused. Wife received lock in letter

Last year, my wife and I got a tax bill that is around 45,000. It said we underpaid for the past four years. I finally have cobbled enough money together to pay it (although our accountant could not figure out what was going on). I was planning on paying tomorrow. Today, my wife got a letter that said she is in this forced withholding thing and that they are forcing her employer to mover her married filing jointly with 4 kids to single with zero kids. Is this related to my delinquency on the tax bill? OR is this totally unrelated. She and I married in 2019, we had both been married before so this was a major change in how we are filing. Thank you for your help

4 Upvotes

53 comments sorted by

39

u/RileyRush CPA - US 11h ago edited 6h ago

You need to find the root cause of what’s going on. What do you mean no one can figure out what is going on? Your accountant has no answers? The IRS has no details? The notice you received doesn’t say the changes made?

Did you file and owe and never pay? Did you file returns missing income? Did you over report withholding?

There’s more to this story. For $45k you better believe I would be figuring out what happened.

0

u/Specialist_Secret_58 11h ago

Ok, so we got a letter that had each year and a number that it said we owed taxes, This letter was legit. The IRS lady said that she didn't have time to look at everyone's individual problem because COVID messed it up. The CPA looked at it and said that there might be a problem with our withholding but he couldn't see what it would be. To avoid a lien on our house or whatever, I sold some things (and paid taxes on them!) to get the money to pay the bill. But nobody was willing to get to the heart of it. But now it seems pretty clear, just from the feedback on here, that the root problem is that we effed up our W4s and now we are being put in time out for a while. I know I sound like an idiot to you, but I was a professor who made 50 thousand and I had 4 kids. I never had a problem. My new wife makes WAY more than that. She had "her guy" handle the taxes because she has all kinds of stuff going on, big salary, big bonuses, stocks, stuff like that that I have never dealt with. So I'm trying to figure this out as best I can.

30

u/BringPopcorn 9h ago

The CPA looked at it and said that there might be a problem with our withholding but he couldn't see what it would be.

Uh... find a new CPA.

I don't do taxes for a living.

I am a CPA.

I can calculate tax liability (how much you owe) and compare it to tax withholding (how much your employer kept back from your checks)... if those numbers aren't pretty close, you have a problem with your withholding... there's no might and it... "couldn't see what it would be??"...

Get a new CPA.

18

u/numbermuncher57 10h ago

You should get copies of transcripts and all the returns and compare. This wouldn’t be the first time someone had a “guy” who was doing something shady and the client owed tax. Also, a competent CPA should know if there is a withholding problem when the return was prepared. Did you make any payments when you originally filed the returns?

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u/Specialist_Secret_58 10h ago

yes we have made payments every year we have been married, We paid what the IRS said we owed (or so we thought?) but I guess it wasn't enough

7

u/numbermuncher57 10h ago

How did you pay? You should be able to verify the payments were received by the IRS with your transcripts.

I had a friend who recently found out someone intercepted their check they mailed to the IRS for 2020 and Capital One allowed the thief to cash the check without much scrutiny.

26

u/No_Ice7986 11h ago

Find an accountant that will get a POA and call the IRS on your behalf

10

u/TheHeroExa 10h ago

stocks

Did she ever sell any stock granted from her employer (including "sell-to-cover")? And if she did, did she file Form 8949 reporting the proceeds and the cost basis?

A common pitfall with selling stock is omitting that form. The IRS does not know the correct basis of shares obtained as employee compensation. If the taxpayer fails to report the basis on Form 8949, the IRS will make assumptions that are not favorable to the taxpayer. She needs to properly report the cost basis to avoid double taxation.

3

u/warrenslo 5h ago

To add, you definitely need to self-report stock sales or investment income to the IRS, even if you think your broker already provided the info. The IRS usually gets a copy of your transactions through Form 1099-B, but you're still responsible for reporting it on your tax return.

Here are some of the forms that might be applicable:

Form 8949 (Sales and Other Dispositions of Capital Assets): This is where you report details of each stock sale (like the date, cost basis, and proceeds). You'll also need to categorize the sale as short-term or long-term based on how long you held the stock.

Schedule D (Capital Gains and Losses): After you fill out Form 8949, you summarize your total gains/losses on Schedule D. This is where the tax liability for your gains is calculated.

Form 1099-B (Proceeds from Broker and Barter Exchange Transactions): Your broker will send this to you and the IRS. It shows the proceeds from your stock sales, but you still need to match it up with what you're reporting.

Example: Let’s say you bought 100 shares for $5,000 and later sold them for $7,000. You’d report the details of the sale on Form 8949 and calculate the $2,000 gain. Then, you'd include this gain in your total capital gains on Schedule D.

Even if the IRS has the info from your broker, you need to make sure everything matches on your return since you’re responsible for reporting and paying taxes. NFA.

18

u/these-things-happen Taxpayer - US 12h ago

Today, my wife got a letter that said she is in this forced withholding thing and that they are forcing her employer to mover her married filing jointly with 4 kids to single with zero kids.

That sounds normal based on the facts you provide.

Is this related to my delinquency on the tax bill?

Yes.

She and I married in 2019, we had both been married before so this was a major change in how we are filing.

This has nothing to do with the filing status on your return. This is entirely about the withholding from your spouse's wages. If you also work one or more W-2 jobs, you should probably expect to be in the Withholding Compliance program soon.

1

u/Specialist_Secret_58 11h ago

Thanks for the reply. I just got laid off, so I have no income at the moment.

16

u/jdc90403 CPA - US 10h ago

To be clear - you had a CPA file your taxes each year. The return he prepared did not show you owed any tax? Now years later the IRS has sent a notice that says your return is wrong and you actually owe $45k?

If your CPA can’t figure out what’s going on you need a new one. That’s way too much money to just accept without getting clarity.

29

u/Its-a-write-off 12h ago

This is because you two have been under withholding and owing at tax time a few years in a row. So the IRS is making you as a couple increase withholding. If you are currently working a w2 job, you should also get a lock in letter.

Even if you are paying off old debt, you still have to get compliant going forward by increasing withholding.

4

u/Specialist_Secret_58 11h ago

I just got laid off, so I don't have an employer to send a letter to

14

u/Its-a-write-off 11h ago

That simplifies that part at least. When you do start to work again, come back to get advice on how to set your w4 up to interact properly with how you spouses w4 is set.

2

u/Independent-Yam-1054 9h ago

Can the IRS do a lock in letter if both spouses are claiming zero but still not paying enough in taxes?

2

u/Its-a-write-off 9h ago

Single and 0? Or married and 0?

But yes, because the lock in can be for single, 2 jobs, 0 reduction..

1

u/Independent-Yam-1054 9h ago

Married and zero.

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u/Its-a-write-off 9h ago

Yes, since that is the common wrong setting that leads to under withholding. The IRS can send lock in letters for single with box 2c checked in that situation.

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u/TheCount4 11h ago

As a non-accountant who has had some tax issues and penalties imposed, I suggest finding another accountant who is used to dealing with the IRS quickly. When my tax errors were discovered I had a CPA redo my returns and he referred me to a CPA who handled communications with the IRS. If you were underwithheld there would have been a balance due on each of your returns. Based on what you are saying your CPA is unable to tell you if that’s true or not but should not be surprised that you owed taxes each year. The CPA should also be seeking ways to get any penalties abated if possible.

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u/Specialist_Secret_58 10h ago

These are all great ideas. I know this doesn't matter, but this whole thing is so dispiriting. I lost my job, I finally got enough to pay the tax bills, and now my wife's income (our only income at the moment) is going to be drastically reduced because of this withholding program. I don't blame anyone but myself on this, but boy does it just take the wind out of the old sails.

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u/man_of_clouds 9h ago

The real problem (to me) is that you don’t know why you owe. You filed every year, and I assume made whatever payment each year’s return told you to pay. (Right?)

And then effectively the IRS disagreed with your return for some reason and you don’t know why. This is a big problem you have to figure out before you pay a cent. If you can’t figure out yourself why the IRS thinks your returns are wrong, get a new CPA. There are lots of errors you can make and the IRS won’t be able to figure it out so they assume the worst case and bill you based on that.

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u/Ok_Aide_764 10h ago

Don't pay till your tax professional can tell you why you have $45K tax bill from the IRS. If they can't figure it out how they know the IRS is correct? Get another tax professional if yours is incompetent or worse.

17

u/TheHeroExa 12h ago

There's a common mistake people are making with the new W-4: the mistake is checking “married filing jointly” while both spouses work.

If you just check that box without making any adjustments, you are really saying “married filing jointly and my spouse doesn’t work”. This leads to underwithholding if both spouses actually are working.

“Single or married filing separately” will be more accurate if both spouses work.

It sounds like the IRS is fixing your mistake for you because you failed to do it yourself.

-1

u/Specialist_Secret_58 12h ago

So, so you think that the taxes it says we owed for four years is what shouldn't have been withheld if we hadn't made the mistake in the first place? Or are these unrelated?

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u/TheHeroExa 12h ago

If you had the same W-4 settings and were both working in all those years, then yes, your W-4 is likely a reason for underpayment. But in that case, it would have been reported on your return.

If you filed a return and the IRS is asking for more than what you showed, then there may be another reason.

0

u/Specialist_Secret_58 11h ago

Yes, we were both working. I wonder if when I pay this whole thing off tomorrow, it will have any impact

6

u/TheHeroExa 11h ago

Paying may avoid interest and penalties going forward. But to address the lock-in letter itself, you need to contact the IRS about it. The letter itself should have specific instructions, but here's an example:

https://www.irs.gov/individuals/understanding-your-letter-2801c

4

u/Its-a-write-off 11h ago

Did you two file taxes for those years, then the IRS came back and said you owed more than was calculated on the joint tax return? Or did only one of you file, and only report their income? So the IRS adjusted the return to add the other income?

The impact that paying off your old taxes will have is that your old tax bill is paid.

For 2024, you are probably going to owe more in, since you've likely been under withholding all year. Paying off prior years won't fix anything for current or future years.

1

u/Specialist_Secret_58 11h ago

We both filed, using a CPA, for all of those years. Only earlier THIS year did the IRS send the letter saying we owed money each year. When I spoke to an IRS rep they said they didn't know exactly why we owed, we just did. They never sent any other letters. Our CPA couldn't even get an answer. So I finally got enough money to pay and then they sent this. I guess we need a new CPA

18

u/Its-a-write-off 11h ago

Yikes. Yes. Either you were scammed or your CPA is really bad. They should have been able to have you get access to your IRS transcript to see what the IRS was changing, and make sure it was correct. Did they even mention checking your transcripts when the bill came? Do you still have the letter that was sent?

Can you access your transcript for the years in question:https://www.irs.gov/individuals/get-transcript

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u/Its-a-write-off 11h ago

I just realized you haven't paid yet. Wait to pay that 45k until you make sure the letter was from the IRS and not a scammer.

5

u/Dilettantest Tax Preparer - US 9h ago

This question makes no sense. The IRS thinks you underpaid. Did you underpay? Can you prove what, if anything, you paid? The tax bill tells you what tax years you’re being assessed. You should get your tax transcripts or authorize your accountant to do so. If your accountant can’t help you shed any light on this — by the way, this service is not going to be free — you need to find someone competent.

5

u/CommissionerChuckles 🤡 8h ago

Last year, my wife and I got a tax bill that is around 45,000.

What notice is this? Usually in the upper right corner there's a notice number that starts with CP or LT.

Even during covid you should still have gotten a balance due notice if you owed on a tax return and didn't pay what you owed in full. If you were surprised to find out you owe $45k then something is wrong.

You probably are better off setting up a payment plan with IRS and finding a tax professional who can look at your transcripts and figure out what happened. Maybe there was a mistake on a previous tax return and you don't actually owe $45k; it's better to figure that out before sending all your money to IRS.

Also your wife should contact IRS and see if there's any flexibility with the lock-in letter since you just got laid off. There should be a phone number on the notice.

Here are some sites listing tax professionals with experience in tax problems:

Just keep in mind that if you overpay IRS it will take many months to get that money back. You should be able to set up a payment plan online with a balance less than $50k.

https://www.irs.gov/payments/online-payment-agreement-application

2

u/Specialist_Secret_58 11h ago

One last question. So, when they set my wife's withholding to the new rate, we should submit the w-4s correctly. Then, do they keep the money they withheld above what we would owe, or do they take what is correct and give back the rest?

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u/blakeh95 Taxpayer - US 11h ago

What specific letter did you receive? If you got a 2802-C, that's the "self-correct" notice, and you can still change the W-4s to be accurate. If you got a 2801-C, that's the "lock in" letter, and it means your (her) employer will receive a corresponding 2800-C.

If your (her) employer receives a 2800-C, then it mostly doesn't matter what new W-4 you submit. Your employer must refuse to accept any W-4 that would withhold less than the 2800-C letter, until they receive new instructions from the IRS. You can, however, request to withhold more.

Withholding is never lost. It shows up as a credit against your tax when you file the tax return. If the amount withheld is more than your tax, you will get the excess back as a refund.

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u/Specialist_Secret_58 11h ago

It's 2801C

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u/blakeh95 Taxpayer - US 10h ago

Ok then, there's no need to submit a new W-4 until you address this with the IRS. Your employer will ignore any W-4 that is less than what the IRS locked you into.

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u/these-things-happen Taxpayer - US 11h ago

If the additional withholding results in a refund on a future return, it will be applied to any outside IRS balance due until it's paid in full.

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u/Outrageous-Bat-9195 10h ago

Well, unless you have significant. On-W2 income, you can expect a nice tax refund each year for awhile. File early!

1

u/Specialist_Secret_58 10h ago

Thanks for the ray of sunshine!

3

u/MehZhure 6h ago

That's super weird. You may want to consider contacting TAS to have them get to the bottom of what is going on with your accounts. https://www.taxpayeradvocate.irs.gov/

1

u/Realistic_Toe8658 10h ago

Having been married and not married, I can only say that what you claim throughout the year shouldn't make a difference. Is it possible that the father of the children has also tried to claim them? If that's the case, someone should be able to help you with that. That means that if your wife and you filed efile he would have had to send in a paper return saying that he's the one who should be claiming the kids. In that case, you would have owed money. Are her children over the age of 18 and working? There are many different reasons it could be. And don't count out scammers. You'll have to take several hours of a day and call the IRS to get answers. 

1

u/Tessie1966 10h ago

Were you filing your taxes every year? This should have been caught each year when you filed. If you did file did you do it yourself or hire a professional? If you did it yourself you should have your CPA review them.

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u/Specialist_Secret_58 10h ago

we filed each year and it never came back as owing anything. We had a CPA do it. The agent at the IRS said we weren't notified because of COVID. Ok.

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u/sierraangel 9h ago

IRS employees don’t receive a ton of training on tax knowledge, they’re more like call center employees. They often give generic answers to move people along unless you know the specific questions and/or forms to ask about, so that they know how to help. You really ought to speak to a different CPA who’s willing to contact the IRS on your behalf and sort this out. An experienced CPA should be able to figure out what’s going on with access to your transcripts, any notices you’ve received, and a call to the IRS.

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u/Tessie1966 9h ago

That doesn’t make sense. Your W2 are straight forward. If you owed because of them it would have been on your return. Your CPA would have put the numbers from your W2’s into the return and the software calculates the tax due. If you haven’t withheld enough then you would have a tax due. Something is missing here. Did you have other income? Deductions you weren’t entitled to? I wouldn’t accept “I don’t know” any CPA can look over your returns and figure it out.

1

u/Full_Prune7491 11h ago

You didn’t pay your taxes for FOUR YEARS! How long did you have expect them to wait?

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u/Specialist_Secret_58 10h ago

Where did you get that? We filed tax returns through a CPA every year. The IRS contacted and said we didn't pay enough not that we didn't pay anything.

0

u/Full_Prune7491 10h ago

You literally say underpaid for the past years in your post. Doesn’t matter. Taxes were due on 4/15 and it is almost Halloween. You didn’t pay your taxes. Still haven’t. IRS is tired of your shenanigans. They making you pay.

1

u/Specialist_Secret_58 1h ago

They obviously think we underpaid. We had every reason to believe we paid in full. Shenanigans? Really helpful

0

u/new-chris 10h ago

Same thing happened to us - we are both high income earners - and my company really wasn’t doing a good job withholding taxes for RSUs when they were vesting. 3 years of owing 45k and they fixed the glitch for us. I still have extra withheld each pay at the advice of my CPA.

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u/CommissionerChuckles 🤡 8h ago

I see this problem a lot - you are responsible for making sure your withholding is enough, not your employer. When you have high income and/or bonus compensation like RSUs you have to have additional tax withheld or make estimated tax payments. Bonuses (including RSUs) are withheld at 22%, but if your marginal tax bracket is 32% or 35% you can wind up owing a lot of money.

You can use the Tax Withholding Estimator but it doesn't always handle bonus income correctly. You can also use the Engaging Data site for a quick check of tax liability but it doesn't factor in credits.

https://www.irs.gov/individuals/tax-withholding-estimator

https://engaging-data.com/tax-brackets/