Chapter 5: Withholding Instructions

Put a Hold on Your Withholding Tax Collections

By Seth Maynard

Did you know that you can relieve yourself from withholding?

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 clearly 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!

There are several important steps to implement this. First, your employer or his representative must be made aware of the provisions of Internal Revenue Service (I.R.S.) Publication 54. An original copy would help your cause and this could be obtained by visiting the taxpayer service division of the I.R.S. Letters, statements and notices must be drawn up and submitted.

Michael Ioane’s book, “Boston Tea Party”, contains a chapter explaining all the necessary steps to perform this. He also included sample letters, statements and notices within a binder; not to mention important tips to facilitate your claim.

You must meet your employer’s representative, the human relations employee, the company lawyer, etc., as this claim needs to be filed through your employer. As mentioned, not many people know about this and you should be very patient with the company representative. Your request may not be filed. Then you must persist, gently, and ask that your request be filed for later use.

Do not blow up your relationship with your employer. Instead, be very prepared to answer each question to convince your employer about the validity of your claim. Take heart in the fact that the law allows the taxpayer to decrease the amount of his taxes so long as the means are legal. Pick up a copy of “Boston Tea Party” and get a boost in your corner of the fight.