Yes, when your state or local withholding exceeds a certain percentage of the state or local wages, you won't be able to e-file your return.
This is a measure taken to prevent individuals from claiming more state/local withholding on an e-filed return than what was actually withheld. This gives the state an opportunity to confirm the amounts withheld from a physical copy of the Form W-2, rather than accepting what you manually entered in an e-filed return.
