RE: Details on the IRS's new W-4 policy
Dec 28, 2005 17:30 PST
I looked into some other sites about this W-4 policy business, including
questions and answers on the IRS site:
http://www.irs.gov/individuals/article/0,,id=139412,00.html. Robert may
be right that it's not a "big" change, partly in the sense that most
salaried wtr's hit the roadblock when a levy comes - are they going to
stay or go? If the IRS asks that the allowances be changed before a
salary is garnished, the wtr employee again has to decide whether to
stay or go or how to deal with it.
What seems different to me is that the IRS used to ask employers to send
in a W-4 with more than 10 allowances or "exempt" if the person didn't
seem to qualify. The bar was kind of high for enforcement. We knew that
policy was dropped, but with the new emphasis by the IRS on
under-withholding, the enforcement - IRS telling the employer to change
the allowances to withhold more - could hit more people who just take
one or two extra allowances so as to have something to resist at the end
of the year. The IRS is not relying on hearing about high numbers of
allowances so much as (supposedly) enhancing their tracking of income
reported on W-2's with salaried people who owe the IRS money at the end
of the year.
The other part of that article sent out by Moorlock (below in this
email) that I was thinking sounded more problematic was this "lock-in"
letter following people to new jobs. Will the IRS institute these fines
faster on people they think are quitting jobs to avoid the change in
their W-4? On this topic I did not find references in the IRS site
specifically. I did see some other articles from payroll associations,
who are not particularly happy about all of this. They see it as more
paperwork than the previous process of just sending in questionable
W-4's (despite the IRS promoting that as paperwork reduction), plus they
are asking the question, how long do they have to keep the "lock-in"
info in their computers if an employee has left the job or quits. If
that person is rehired a year later and the "lock in" info has been
purged from their system, is the employer liable for the taxes if the
IRS notices that employee again? That seemed to be an open question.
As we've said, the main thing to watch is how this is being carried out
and enforced by the IRS and whether it appears to be a significant
change. Please respond if you think I have mixed things up here or have
other takes on the information available. And if you have received a
lock in letter, do you have any insight on this?
But I don't mean to get too tangled up in this either - keep our eyes on
the prize -
National War Tax Resistance Coordinating Committee (NWTRCC)
PO Box 150553
Brooklyn, NY 11215
(718) 768-3420 * (800) 269-7464
Fax: (718) 768-4388
From: Robert G. Randall II [mailto:email@example.com]
Sent: Wednesday, December 21, 2005 10:07 PM
Subject: Re: [wtr-s] Details on the IRS's new W-4 policy
| ||This is a pretty big change, especially with the threatened
will certainly want to hear if salaried resisters are
feeling the pinch
and how consistently the policy is carried out.
I'm not sure this is such a big change.
The threatened fines are the already existing $500 civil penalty for
filing a W-4 claiming excessive allowances. The IRS' ability to assess
this penalty has been there all along; the question is whether or not
this represents a change in the likelihood that they will actually
assess it. Or is this just another tax season (it is time for the 1040
forms to go out) scare story of the type which the media runs every year
to assist with IRS compliance efforts? (Perhaps not, or the article
would have mentioned the possible year in jail and $100,000 fine (!) for
"willfully supplying false or fraudulent information" on a W-4 which
decreases the amount of withholding. This is the potential, but so far
extremely unlikely, criminal penalty if prosecuted for W-4 resistance.)
Does anyone know anything about Market Watch? The website comes across
as a pretty generic personal investment/financial news site.
The so-called "lock-in letter" is also not new. The IRS has always
had the right to direct one's employer to withhold at a higher rate once
it has decided that your W-4 is inaccurate or inadequate. And NWTRCC
has always informed people of that. See page 5 of our Practical War Tax
Resistance #1, "Controlling Federal Income Tax Withholding".
Even the part about employer liability for the taxes is
not new. See page 4 of the same pamphlet referenced above. Once an
employer has knowledge that a W-4 is claiming allowances not permitted
under IRS rules, the employer who fails to act on that knowledge is
liable for civil and criminal penalties, and, I'm almost certain, that
liability includes the unwithheld tax amounts. This is why we've always
counseled wtr's not to tell their employers why they are filing a new
Interestingly, the tone of this article seems opposite
the newly released IRS policy which lightened the employer's
responsibility to alert the IRS of questionable W-4's, as reported in
More Than A Paycheck just this past June. However, the procedure in the
second paragraph of the article (below) is consistent with the new
policy as reported in June.
I suspect this entire article is just a re-casting of long-existing
tax law and IRS regulations, reported in a different lingo than what we
are used to seeing.
As Ruth says, we'll have to wait to see if there is actually any
change (i.e., "crackdown") in what is happening to us -- unless someone
knows an IRS agent who can vouch that they've recently received new
instructions and training on this. In other words, I'd be more
interested in seeing new language in the IRS Policies and Procedures
Manual before assuming that this story describes a substantive change.
OTOH, it is clear that the IRS under Bush has been much more likely to
pursue and collect than it had been doing for several years prior. So
perhaps there is something to this, but I sure wouldn't panic over it
Can't pay for killing in either
Sent: Tuesday, December 20, 2005 10:49 PM
Subject: [wtr-s] Details on the IRS's new W-4 policy
Keeping a bigger piece: IRS tightens rules on paycheck withholding
By Eva Rosenberg, MarketWatch
LOS ANGELES (MarketWatch) -- The IRS is cracking
down on employees who have too little tax withheld from
and will also put employers in its sights if they try to
underpaying workers by endorsing questionable W-4 forms.
Instead of just relying on the W-4s
themselves, the IRS will start looking at individual tax returns to
determine who is not having enough withheld.
If you have a balance due and you don't
pay those taxes when you file your tax return, the first
thing IRS will
do is to look at your W-2s to see how much total federal
income tax was
withheld. If it is clearly inadequate, both you and your employer will
be getting letters from IRS telling you to file a new W-4 to raise your
is a form you file with your employer, declaring how many exemptions you
are entitled to based on your projected income and the projected
deductions you'll be allowed to take when you file your annual tax
return. The more exemptions you claim, the lower your withholding.
If the IRS asks for the new W-4
and you don't reply, or if IRS rejects your calculations on
the form, a
"lock-in" letter will be sent to you and to your employer setting and
freezing your withholding at the rate IRS requires.
If you have special circumstances
this year, respond to the letter immediately and let IRS
writing, why your situation warrants the lower deductions.
Now here's the really
tough part. If you don't comply, or if you try to get around the rules
by filing a new W-4 or if you quit your job and start working for a new
employer who doesn't have the IRS lock-in letter, you'll face penalties.
will charge you $500 to start with, and $500 for every new
W-4 you file,
with any employer in any year until the agency releases the conditions
of the lock-in letter it issued.
Employers, especially in a small businesses where owners
may be closer to employees, can be tempted to try to help
out by fudging
the W-4s or looking the other way when an employee files for unsupported
exemptions. They may even be reluctant to enforce the lock-in letters
from the IRS. That kind of attitude will now cost them.
Employers who don't enforce the W-4
compliance rules or who permit employees to file another W-4 with higher
withholding after they receive a lock-in letter will be responsible for
paying IRS all the federal income taxes that should have been withheld.
In other words,
IRS is going to get their money from either you or your employee -- you
decide who pays.