Court Leaves IRS Lock-In Letter Withholding Rules in Place

A federal court in Texas has dismissed a challenge to the IRS regulation governing lock-in letters, leaving withholding directives issued to two employers in place.

In November 2024, the IRS sent lock-in letters to the employers of Matthew Lobdell and Shawn Gibson.

The letters directed the employers to withhold federal income tax at the maximum Single 0-0 rate, disregarding the employees’ Forms W-4. The IRS had determined that both employees were overclaiming exemptions.

Big Hits to Employees’ Paychecks

The letters increased withholding by about $1,100 per paycheck for Lobdell and $950 per paycheck for Gibson. The employees said they objected to the IRS by mail and phone, but the agency did not reconsider their withholding status.

Lobdell and Gibson sued, challenging the regulation that authorizes IRS lock-in letters.

On Sept. 16, 2026, a federal court in Texas dismissed the case without prejudice, ruling that the requested relief was barred by the Anti-Injunction Act and the Declaratory Judgment Act’s tax exception. As a result, it didn’t reach the merits of the plaintiffs’ challenges to the lock-in-letter regulation.

The letters issued to Lobdell’s and Gibson’s employers remain in effect unless the agency modifies or withdraws them.

What to Know About Lock-In Letters

An IRS lock-in letter is a mandatory withholding instruction – not a W-4 dispute the employer can resolve. Employers that receive one must:

• Give the affected employee the IRS-provided employee copy of the lock-in letter (within 10 business days if the employee is still employed) 
• Apply the specified withholding arrangement on the notice’s effective date, and 
• Honor a Form W-4 that increases withholding but must disregard one that would reduce withholding below the letter’s instructions unless the IRS approves the change.

More info: Lobdell v. United States