, I noted that the IRS was changing its policy about W-4 forms. we have some more information about how this change of policy may cause problems for tax resisters who try to prevent or reduce withholding.
Your employer uses the number of allowances you declare on this form to calculate how much to withhold from your paycheck each month to send to the IRS. The more allowances you claim, the less gets taken out. Some tax resisters claim a bunch of allowances so that nothing gets withheld.
Formerly, if you gave your employer a W-4 with a large number of allowances (more than ten, say), your employer had to forward that form to the IRS. Now, the IRS is going to rely on other methods of ferreting out suspicious W-4 forms — but in a way that actually puts a higher enforcement burden on employers than before.
Now we have some new information about how the IRS plans to crack down on W-4 exaggeration:
The IRS is cracking down on employees who have too little tax withheld from their paycheck and will also put employers in its sights if they try to shield 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 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 know, in writing, why your situation warrants the lower deductions.
W-4 to raise your withholding. 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.
The IRS 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.
If this isn’t just bluster on the part of the IRS, it could present a real challenge to those tax resisters who rely on interfering with withholding in order to resist the federal income tax.
See The Picket Line for an update on this.
