Did you know that you can relieve yourself from withholding, in addition to making a hardship claim?
Employees are usually subjected to withholding tax. The income tax is collected by employers by withholding the appropriate amount from the employee’s salary. This is withholding at the source of wages. This is held as credit in payment of the tax imposed for the taxable year. This is done based on the presumption that taxpayers can pay on an as-you-go basis.
Based on subtitle C of the Internal Revenue Code (“IRC”), an individual may claim exemption from withholding if: he incurred no liability for income tax under subtitle A of the code in the previous taxable year and if he would not be liable for income tax under subtitle A of the code for the current taxable year. It becomes apparent that the more important section of the law is subtitle A. Subtitle C only mentions when income tax may be withheld.
Not known to many people, subtitle A discusses tax withholding only when referring to nonresident aliens and foreign corporations. An individual exempt from withholding is defined as a nonresident alien who may be any of the following: related to a foreign government, a teacher, a trainee, a student or a professional athlete temporarily in the country to compete in a charitable sports event.
The above statements do not apply to an American citizen. Moreover, a citizen can claim to be a person not subject to withholding under Treasury regulation section 1.1441-5. You simply need to file a written statement with your employer, one that states that you are a citizen or resident of the United States of America. According to Internal Revenue Service Publication 54, tax withheld in error can be claimed as a credit on a tax return. This is good news and discussed in the “Boston Tea Party” it includes sample letters, employer letter, statement to IRS, notices and so much more.