Despite
the fact that tax protesters are routinely penalized by the
IRS and the courts, the number of people who try to illegally
avoid paying taxes seems to grow every year. You may even find
the discontent
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problem of questionable W-4s is enormous. Before the
rules changed, the IRS estimated that approximately
600,000 questionable W-4 forms were forwarded by
employers each year.
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spilling over into
the workplace.
It usually starts with a bogus W-4 Form
filed with your payroll department. Watch out for tip-offs,
such as a faulty claim for tax-exempt status, entries for an
extraordinary number of withholding allowances or other false
or misleading information. And if an employee delivers a
ten-page manifesto as to why withholding taxes violates the
spirit of the U.S. Constitution, you've got a tax protester on
your hands. Although it's good to be heads-up when you have a
malcontent on staff who might affect morale, the actions you
are required to take are now limited.
The Employer's
Responsibility has Changed
Previously, employers who were presented with W-4s that
seemed problematic were required to automatically send those
forms to the IRS so they could determine if the employees were
trying to dodge their federal income tax responsibilities. A
change in federal payroll tax rules eliminated this
requirement as of April 14, 2005. Under the new rules, an
employer is only required to submit copies of Forms W‑4 to the
IRS when specifically told to do so in a written notice or in
published guidance that applies to all employers.
This employer-friendly change is not to
suggest that the IRS is no longer concerned about questionable
W-4s. Instead of making the employer responsible for spotting
these problems, the IRS has developed a new procedure that
uses information already reported on the employee's W-2 form
to identify individuals who are likely to be out of compliance
with federal income tax withholding rules. If an employee is
thought to have a serious under‑withholding problem, the IRS
will notify the employer to withhold federal income tax from
that employee's wages at an appropriate rate. (IRS
Information Release IR 2005‑45)
As
before, however, the IRS still has the power to issue a
written notice to an employer that requires submission of
copies of Forms W‑4 for specified employees. Also, the IRS can
still develop specific criteria for identifying Forms W‑4 that
must be submitted, and this can be done either via a written
notice to a specific employer or by published guidance that
applies to all employers.
If the IRS determines that a
specific employee cannot claim more than a certain number of
withholding exemptions or should not be allowed to be
completely exempt from withholding, the employee (not the
employer) must deal directly with the IRS by supplying a new
W-4 and a written statement that supports his or her claims.
The employer is out of the loop. The employee generally has 45
days to resolve the issue with the IRS before the employer is
required to implement withholding changes.
What Should You
Do?
Make it clear to employees that your company follows the
rules and regulations of the Internal Revenue Code to the best
of its ability. Create strict deadlines for filing W-4s to
deter timing scams. What if an employee does not give you a
completed W-4 form? The IRS instructs employers to withhold
tax as if the employee is single, with no withholding
allowances.
Be on the lookout: Phoney but
official-looking forms have been making the rounds among
employers. They include Form W-4T (Voluntary Withholding
Agreement, Termination or Withdrawal From W-4 Agreement) and
Form SSN (Citizen's Assertion of Legal Right to Withhold
Disclosure of SSN). If you come across either one, you should
confront the employee who submitted it and contact me at (856)
665-2121 or by email.
