[tips_and_tricks] Terminating withholding without being terminated
- Has anyone successfully terminated employer withholding (as the law provides one can do) without being terminated? And if not, how can an employer refuse to terminate a voluntary withholding agreement on request of an employee? I don't think there's any penalty for them, at least I haven't seen it in my searches through titles 26 & 31.
A few years back I got one very big employer legal department to not withhold based on a very simple letter. Ultimately it’s not the problem…the problem is they still W2/1099 you and thus in a matter of a few years comes knocking the IRS claiming you owe they 4x what would have been withheld. I would say the HARD part is not the withholding….its in getting them to not 1099/W2 which is very hard if you work for a paycheck.
There is no penalty for them and here is the reason why.
A W4 is entitled a “Witholding Allowance Certificate.” Don’t let the reference on the form to “number of allowances” distract you from the title of the form. The W4 is worthy of an expose on Penn and Teller because it’s a SUPERB version of magician distraction.
The word ALLOWANCE is used in the title to indicate YOUR permission slip….you ALLOW your employer to withhold. It is a certificate because it has a CERTIFICATION in the form of penalty of perjury to let your employer know you definitely want them…allow them….to withhold.
Now you know why there is no penalty because frankly you must give them permission to withhold.
A few years back the IRS made big law and accounting firms the stated…. “partners in the administration and collection of income tax.” Employers are routinely told by the IRS and their own law/accounting firms to exceed their authority and reject altered forms as well as forms that contain what the form reviewer perceives as an incorrect withholding allowance. Most are told to NOT cite law but rather cite POLICY. So pinned down employers will say it is their policy.
They justify termination on the basis of a court case that ruled that an employer could terminate if the employee was taking steps to prevent the employer from paying taxes. In other words they claim the employer has a legal obligation to pay those taxes and disruption of that legal obligation is justification for termination.
Has anyone successfully terminated employer withholding (as the law provides one can do) without being terminated? And if not, how can an employer refuse to terminate a voluntary withholding agreement on request of an employee? I don't think there's any penalty for them, at least I haven't seen it in my searches through titles 26 & 31.
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- > Has anyone successfully terminated employer withholding (as the law provides one can do) without being terminated?Sure, people do it all the time - put "EXEMPT" on the line for that, or take like 9 deductions on the W-4 they turn in & an employer has to accept a properly signed W-4 with "your" SSN on it, regardless of whether or not he thinks you're exempt or are entitled to several deductions. FICA & FUTA will still be withheld (social security, etc.), but State & federal "income" taxes won't.BUT (you knew there had to be a but, didn't you?), sooner or later the IRS is likely to send the employer a letter telling them to change your withholding status to single with -0- deductions (even if you're married with children) & not to accept any more W-4's from you until they say so. Might take 2-3 years for that to happen & it might never happen, but it could also happen much sooner - the IRS closed its "Questionable W-4" office in California quite a while ago, but they still "red flag" W-4's they think have too many deductions or have the EXEMPT part filled in for a full-time employee.Understand this - the employer must pay social security & other taxes on each of his employees, whether he deducts anything from their paycheck or not, but while the IRS may tell the employer to chenge your withholding status from Exempt (or 9 deductions, etc.) to -0-, taxes, penalties & interest the IRS claims because there was no "income" tax withholding from you is between you & the IRS - the employer is not penalized for accepting a W-4 that says Exempt or has more deductions than the IRS thinks it should. And as long as you're in "the system", filling out W-4's, using the SSN, etc., sooner or later those computer-generated IRS letters WILL start coming.So all you've really done by going Exempt (or with a lot of deductions) is buy yourself some time. Some people change jobs every 2 or 3 years & they stay ahead of the IRS that way, plus they use a P.O. Box instead of their home address & so on, but since the IRS' master computer goes by SSN in numerical order, not by name, address, employer, etc., as long as that SSN is "active", the master file account on you (Individual Master File - "IMF") is still active & the computer will do what it was programmed to do - kick out "we haven't received your tax return", "you haven't paid us what you owe", "notice of intent to levy", etc. letters, finally getting to that "90-day notice" before they start garnishing your paycheck, cleaning out your bank account, etc.Or you can do what I & many others did many, many years ago - stop working as an "employee" & stop using that SSN. Of course you must have some marketable skills to work as an independent contractor & now is not the best time to be quitting a job & going out on your own unless you know that you can, but the point is that's the only way to get out of "the system".~ ~ ~
You might try asking for the complete "withholding form." Normally what a employer gives us to fill out is only the front or first page of a 3 page document. Feel out the form without putting down any dependants. Don't even court yourself as a defendant, don't lie and claim 9 or 99. Don't put down the first "number" not even a "0" for a "0" is a number. It means you have 0 dependants, and the fact that you could or could not have dependants is and of itself serving a legal function. SO all I do for the dependant numbering is place a simple left to right line or mark to signify I read it and placed nothing. Then in the part where it states, "if you paid no taxes for the last year etc" you can go exempt and you go exempt write EXEMPT on this line, or something like that.If the questions ask if you are US citizen etc and you are to check one, check or other if offered, and if not write in your status, keep it simple. American Citizen, Christian Citizen, Muslim, Catholic, Native American, etc.Complete the other pages to this withholding as best you can and as honest as you can. Do not skip over any questions. Always write something if only a line through it or NA.It will ask if you have ever made a "religious voil?" Check YES or answer YESAvoid waving any RED flags pointing out that you are a patriot or tax protestor etc. Keep the document clean and to the point, you are not in a court room or inquisition. You are applying for a job that you obviously want.Don't be alarmed if the IRS responds to the withholding form. In most cases they do but not always.. They may respond by sending you another complete form to complete just to double check on your filing status. Complete the additional form the same way. If they only send you a letter, it usually states, We find that your EXEMPT status is correct, should your status change please notify us of the change.... Larry
- Not to be argumentative, but maybe instead of "exempt" a man or woman might write "except"ed 26 USC 3401(a)(8)(A)(I):
For purposes of this chapter, the term ''wages'' means all
remuneration (other than fees paid to a public official) for
services performed by an employee for his employer, including the
cash value of all remuneration (including benefits) paid in any
medium other than cash; except that such term shall not include
remuneration paid -
(8)(A) for services for an employer (other than the United
States or any agency thereof) -
(i) performed by a citizen of the United States if, at the
time of the payment of such remuneration, it is reasonable to
believe that such remuneration will be excluded from gross
income under section 911;
Congress does clearly say "except" and not "exempt". Wonder why?
Maybe it has something to do with the Congress' defined employer and employee?
For purposes of this chapter, the term ''employee'' includes an
officer, employee, or elected official of the United States, a
State, or any political subdivision thereof, or the District of
Columbia, or any agency or instrumentality of any one or more of
the foregoing. The term ''employee'' also includes an officer of a
For purposes of this chapter, the term ''employer'' means the
person for whom an individual performs or performed any service, of
whatever nature, as the employee of such person, except that -
(1) if the person for whom the individual performs or performed
the services does not have control of the payment of the wages
for such services, the term ''employer'' (except for purposes of
subsection (a)) means the person having control of the payment of
such wages, and
(2) in the case of a person paying wages on behalf of a
nonresident alien individual, foreign partnership, or foreign
corporation, not engaged in trade or business within the United
States, the term ''employer'' (except for purposes of subsection
(a)) means such person.
- I have always used the word EXCEPTION on the withholding form. As far as getting your employer to honor it show him a copy of U.S.v Malinowski 347 F. Supp 347 at 352. (1972) "The employer is not authorized to alter the form or to dishonor the employee's claim" .