Not withholding Federal income taxes for yourself or your employees can get you in a lot of trouble
It’s an old scam with a long history and keeps coming up throughout the United States. Con artists will tell you that according to Section 861 of the U.S. tax code, you’re not required to withhold federal income taxes. This con uses an interpretation of the tax law that indicates wages are not considered a “source” of income and that the “sources of income” definition doesn’t apply to individuals.
However, there’s ample evidence that the IRS rejects these types of arguments. For the past several years, the IRS and U.S. Justice Department have increased their enforcement of non-withholding in both civil and criminal courts. If you’re caught and convicted of evading taxes you’ll be ordered by the court to pay the taxes owed, the interest on the unpaid taxes and face possible jail time in a federal prison.
Ultimately, you’re solely responsible
Some employers decide they’re going to fight the IRS and in protest don’t withhold taxes for you. In the eyes of the law, it doesn’t matter if it’s your boss not paying taxes or you. Individuals are the only ones responsible for paying their taxes and will be held accountable, even if it’s your boss who’s breaking the law.
While your boss will be taken to task for not withholding income, Social Security and Medicare taxes from your paychecks, you’ll be the one held ultimately responsible. If those taxes aren’t being withheld from your paycheck, the IRS will come after you. The taxes owed will be enormous and include not only the unpaid taxes but the interest and penalties for not paying them regularly throughout the year as your wages were earned.
How to Report Suspected Tax Fraud Activity
The IRS provides the following information on their website (www.irs.gov):
Suspected tax fraud can be reported to the IRS using IRS Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS Web site at IRS.gov, or through the U.S. Mail by calling 1-800-829-3676. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888.
The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential. The person may also be entitled to a reward.”
Not Withholding: Not withholding will get you into a lot of trouble that is, if you’re ignorant of tax law! People in general only talk nonsense about what will happen if your boss does not withhold tax on your wages. First of all, you must meet the requirements of withholding in 26 U.S.C. subtitle C, chapter 24 to withhold tax, which means you must be federally employed. In section 3401(c) the definition of a employee for withholding is defined as a federal worker only. Section 3402(p) provides that a federal worker can pay the income tax on any specified federal payment by making a voluntary agreement with the employer to withhold. If the federal worker elects to not have withholding of tax, he/she submits to section 3402(n) as having no liability for tax. Subtitle C is the subtitle on withholding of federal income taxes on any specified federal payments by federal employees and the non-federal private sector American is not mentioned. There is no liability for tax on income which is easily seen by looking in the Index to 26 U.S.C under the caption, “Liability for tax”. Anyone wishing to refute this reply with applicable law in the tax code is welcomed by me.