Yes, when your state or local withholding is in excess of 50% of your W-2 wages, you won't be able to e-file your returns.
The state will confirm the amounts withheld using an actual (paper) copy of the your Form W-2, rather than just accepting what you manually entered in an e-filed return.
This extra verification process is used to stop people from claiming more state withholding on an e-filed return than what was actually withheld.
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