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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3724
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Regarding State and Federal Withholding Tax: I recently

Resolved Question:

Regarding State and Federal Withholding Tax:

I recently had a business become insolvent due to the economy with a significant loss.

Several months ago I took a full time hourly position with a huge company at a very modest wage.

My business loss is probably enough to put me in a zero tax situation for several years.

I request to be exempt from Federal and State withholding tax on my W4 forms.

I have been employed 5 months now and despite the W4 and several calls they are still withholding Federal and State tax. They seem sympathetic when I call and claim it takes a while to "get into the system".

My understanding is that they have 30 days to make the change. I am frustrated with my efforts to get this resolved via the company. Is there some way I can get this resolved via the IRS and/or Iowa State Dept of Revenue?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi,

NPVAdvisor :

First let me show you what IRS says to employees about this issue..... from: http://www.irs.gov/Individuals/Withholding-Compliance-Questions-&-Answers

NPVAdvisor :

Q8: What should I do if an employee submits a valid Form W-4 that appears to be claiming an incorrect withholding amount?
A8: You should withhold federal income tax based on the allowances claimed on the Form W-4. But, you should advise the employee that the IRS may review withholding to ensure it is adequate, and that the IRS may direct you, as the employer, to withhold income tax for the employee at a certain rate if the review indicates the employee’s withholding is inadequate. Once this occurs the employee will not be allowed to decrease their withholding unless approved by the IRS.

Customer:

Hello

NPVAdvisor :


First let me show you what IRS says to employees about this issue..... from: http://www.irs.gov/Individuals/Withholding-Compliance-Questions-&-Answers






7:42 PM



Q8: What should I do if an employee submits a valid Form W-4 that appears to be claiming an incorrect withholding amount?
A8: You should withhold federal income tax based on the allowances claimed on the Form W-4. But, you should advise the employee that the IRS may review withholding to ensure it is adequate, and that the IRS may direct you, as the employer, to withhold income tax for the employee at a certain rate if the review indicates the employee’s withholding is inadequate. Once this occurs the employee will not be allowed to decrease their withholding unless approved by the IRS.



NPVAdvisor :

Question? What is your source regarding the 30 days time line... I cannot find this in the regs

NPVAdvisor :

Still looking for what the regs say on this, however

Customer:

Ok thanks. This was my understanding.

NPVAdvisor :

WHile I'm looking youi might want to read through this: http://www.irs.gov/Individuals/Withholding-Compliance-Questions-&-Answers to get the flavor, but as you can see in Q8 they are telling employers that they must honor yourn request

NPVAdvisor :

Hang with me

NPVAdvisor :

Just found this:




When Will My New Form W-4 Go Into Effect?




If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4.


If the change is for next year, your new Form W-4 will not take effect until next year.

NPVAdvisor :

I'm so sorry I am finding no enforcement procedures other than those for reporting underpayment of taxes and evasions ... let me see If I might find something through Dept of Labor (HOWEVER both of those statements (that they must honor your request and that they should be making it effective for the next Pay Period are certainly items that you can print and show, or email, to your H r people)

Customer:

There was no change. It was for the W4 when I started the job.

Customer:

I am looking to find out how I can get this changed outside from the outside - ie via IRS etc. since they are non compliant.

Customer:

BTW I had some technical problems with chat so I got disconnected for a while.

NPVAdvisor :

Then they should have done it from the beginning: see this

NPVAdvisor :

NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECTION, AN EMPLOYER SHALL NOT BE REQUIRED TO DEDUCT AND WITHHOLD ANY TAX UNDER THIS CHAPTER UPON A PAYMENT OF WAGES TO AN EMPLOYEE IF THERE IS IN EFFECT WITH RESPECT TO SUCH PAYMENT A WITHHOLDING EXEMPTION CERTIFICATE FURNISHED TO THE EMPLOYER BY THE EMPLOYEE CERTIFYING THAT THE EMPLOYEE (IS EXEMPT FROM WITHHOLDING)... 26 USC §3402 (n)

NPVAdvisor :

The applicable IRS regulation as to responsibility of private companies:


THE EMPLOYER IS NOT REQUIRED TO ASCERTAIN WHETHER OR NOT THE NUMBER OF WITHHOLDING EXEMPTIONS CLAIMED IS GREATER THAN THE NUMBER OF WITHHOLDING EXEMPTIONS TO WHICH THE EMPLOYEE IS ENTITLED.' IRS Regulation 31 .3401 (e) (b).


So, the employer only has the duty to honor W-4 forms as filed, not to make any determination. According to current IRS procedures, the companies can notify the tax agency that a worker has claimed exempt or whatever on the W-4 form, but the payroll department still can not be made responsible to amend any form.

NPVAdvisor :

So what you have is 26 USC §3402 (n) from the Internal Revenue Code (Title 26 of the US Code)

Customer:

So if I understand you correctly I have no other recourse other than the payroll dept?

NPVAdvisor :

and the IRS Treasury Regulation: ... Regulation 31 .3401 (e) (b).

NPVAdvisor :

This is a legal issue

NPVAdvisor :

I am giving you the citations to the rules

NPVAdvisor :

they are breaking the law and you need to tell them so

Customer:

I did tell them actually.

NPVAdvisor :

The next thing you can do, afer providing the actual code AND treasury reg they are running afoul of, is have an attorney write a ceaase and decist letter..... in ND? probably $100

NPVAdvisor :

The awesome Revenue Service cannot help you: This matter is between the Plaintiff (employee) and the Defendants (employer) and the Internal Revenue Service has no interest in the circumstances of this action (and is) not a party. Stahoviak v. Denver and RGW Railroad Co., #79CV205, Routt County, Colorado 21 Jan 80.

NPVAdvisor :

Further the courtsa havd said this:

NPVAdvisor :

THE EMPLOYER IS NOT AUTHORIZED TO ALTER THE FORM OR TO DISHONOR THEEMPLOYEE'S CLAIM. THE CERTIFICATE GOES INTO EFFECT AUTOMATICALLY IN ACCORDANCE WITH CERTAIN STANDARDS ENUMERATED IN (IRC) 3402 (f) (3) . US V.MALINKOWSKI, 347 F. SUPP. 352 (1972).

Customer:

Ok. It may not be practical to get a lawyer involve. Nevetheless I appreciate your clarification and may have to take this step if this goes on for a longer period of time.
Can they be sued for the attorney's fees?

NPVAdvisor :

but no, there i no easy way to handle this illegal action of the part of your company other than to do what we mcut do.... use the legal system

NPVAdvisor :

HOPEFULLY I've loaded your gun, the "ammunition for writing a well documented cease and deciso letter which you can send to them as a certified letter OR have an attorney do for you

Customer:

Yes I think so. Thank you for your help!

NPVAdvisor :

MOST deifinite... they are the wrongdoer here, I would su for attorneys fees, lost interest on wages, and IIED (Intentional Infliction of Emotional Distress)

Customer:

Great. Thank you!

NPVAdvisor :

Good luck... they are not following either case law or Treasury regulations OR federal US LAw ... go get 'em

Customer:

Will do.!!

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3724
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Thank much for the rating Michael.

Let me know how it goes.

Lane

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