A United States district court in Pennsylvania recently held that employers are obligated to follow an IRS "lock in"
letter, and, as a result, cannot be held responsible by the employee for following the IRS's instructions.1 This case
serves as a reminder that employers should follow employees' instructions on withholding, but they should
immediately implement any "lock in" letters they receive.
The facts of the case are straightforward. Charles Giles worked for Volvo Trucks North America (VTNA). In April
2004, Mr. Giles submitted an IRS Form W-4 claiming he was exempt from federal tax withholding, as allowed under
Internal Revenue Code (IRC) section 3402(n). He also sent VTNA a demand to stop withholding Social Security taxes
and the legal support for his demand. VTNA attempted to comply with Giles' request by entering 99 allowances into
its payroll system, effectively eliminating any withholding from Giles' pay. VTNA then sent the IRS Giles' IRS Form
W-4.
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