Question: Once an employer has agreed to payroll deductions and payments under a voluntary payroll deduction agreement in settlement of an employee’s tax liability, can the employer withdraw from the agreement? Or must the employer continue to participate until the debt is satisfied?
Answer: Form 2159, Payroll Deduction Agreement, is used to establish an agreement between the employee, the employer, and the IRS to satisfy an employee’s federal tax debt. The employer’s role in the agreement is to withhold a specified amount from the employee’s wages and submit the withheld amounts to the IRS.
As with a traditional installment agreement, the IRS and employee agree on the amount of the payments. Then the employee asks the employer to withhold that amount and deposit it with the IRS. The employer is not obligated to participate in the agreement. In that sense, the agreement differs from a requirement to withhold under a lock-in letter or a wage garnishment.
The Form 2159 instructions to the employer state, “The amount of the liability shown on the form may not include all penalties and interest provided by law. Please continue to make payments unless IRS notifies you to stop.”
This highlights one of the agreement’s disadvantages to the employee. If the IRS fails to timely notify the employer when the debt has been satisfied, the employer is likely to withhold and remit more than the employee owes. The...
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