The I.R.S. Modifies its W-4 Policy

Ruth Benn of NWTRCC looks into the IRS’s new W-4 policy (previously discussed here on , , and ):

I looked into some other sites about this W-4 policy business, including questions and answers on the IRS site:,,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… 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.…

If you get a salary and you want to try confrontational tax resistance (not paying what the IRS says you owe), you first need to stop or reduce the withholding from your paycheck by filing an appropriate W-4 form with your employer. Here is a PDF of the latest W-4 form.

“I don’t think I’ve seen a time when so many people have made the connection to their tax dollars and war.” ―Ruth Benn

On I wrote about a new report on the “tax gap” — the difference between the money people earn and what they report to the IRS. I was skeptical that the report was actually measuring what it was reported to be measuring. For more on that debate, from people who are more qualified than I on the subject, click here.

Roth & Company “Tax Updates”, in the course of discussing that recent tax gap report, includes a snippet from James Surowiecki’s The Wisdom of Crowds on “the collective problem of how to get people to pay their taxes”:

[T]here are three things that matter. The first is that people have to trust, to some extent, their neighbors, and to believe they will generally do the right thing and live up to any reasonable obligations. The political science professor John T. Scholz has found that people who are more trusting are more likely to pay their taxes and more likely to say it’s wrong to cheat on them. Coupled with this, but different from it, is trust in the government, which is to say trust that the government will spend your tax dollars wisely and in the national interest. Not surprisingly, Scholz has found that people who trust the government are happier (or at least less unhappy) about paying taxes.

The third kind of trust is the trust that the state will find and punish the guilty, and avoid punishing the innocent… If people think that free riders — people not paying taxes but still enjoying all the benefits of living in the united states — will be caught, they’ll be happier (or at least less unhappy) about paying taxes. And they’ll also, not coincidentally, be less likely to cheat.

If Surowiecki is right, then those of us who oppose the funding of government can possibly invert this and try to attack those three pillars of support for taxpaying. The easiest of these pillars to attack may be “trust that the government will spend your tax dollars wisely and in the national interest.” And to address that point, here’s “Cicero” from To The People:

I’ve never liked saying that members of Congress spend money like drunken sailors, because sailors spend their own money whereas politicians spend other people’s money. But, no matter what you call it Congress is out of control. An Webmemo by the Heritage Foundation shows conclusively that Bush and the Republican Congress have plundered our nation.…


  • Federal spending has grown twice as fast under President Bush as under President Clinton. In , inflation-adjusted federal spending neared $22,000 per household, the highest level since World War Ⅱ.…
  • While members of Congress claim there is no “fat” left in the federal budget, Heritage claims otherwise:
    • The Defense Department wasted $100 million on unused flight tickets and never bothered to collect refunds even though the tickets were refundable.
    • The federal government spends $23 billion annually on special interest pork projects such as grants to the Rock and Roll Hall of Fame or funds to combat teenage “goth” culture in Blue Springs, Missouri.
    • Washington spends $60 billion annually on corporate welfare, versus $43 billion on homeland security.…
    • Over one recent 18-month period, Air Force and Navy personnel used government-funded credit cards to charge at least $102,400 for admission to entertainment events, $48,250 for gambling, $69,300 for cruises, and $73,950 for exotic dance clubs and prostitutes.

And for those Republican loyalists see the evidence that Congress and the Dubya Squad have been inflating the size and power and hunger of the federal government, who respond by saying “at least they’re cutting taxes”… I present for your consideration Dubya’s Treasury Secretary John Snow bragging that Washington has taken in the “highest level of federal receipts in history” since Dubya signed the Jobs and Growth Act.

In a few past Picket Line columns (, , and ), I’ve discussed how the IRS has been losing over and over in court when trying to defend its taxation of flat-rate long-distance phone service. They lost again:

On , a court in Washington, D.C., became the third federal appeals court to void the tax. Two other federal appeals courts, covering seven states, have ruled the tax unlawful, and cases are pending elsewhere in the nation’s 13 appeals courts. In all, nine federal courts have ruled that a 3% federal tax doesn’t apply to phone calls that are priced only by how long a person talks — not by how far the call travels.

That means cellular phones, Internet phone service and about one-third of long distance calls would be exempt from the tax. The wireless industry estimates that consumers would save about $4.5 billion a year. Taxpayers also would be due three years of refunds — about $9 billion.…

“It sounds absurd, but the law is written so that the government can keep collecting a tax even though it’s been ruled unlawful,” says Hank Levine, a lawyer representing businesses that challenged the tax. Federal law makes it nearly impossible to get an injunction to stop the government from collecting a tax, he says.

The average consumer would be entitled to a refund about the size of the average $49.52 monthly bill paid by the USA’s 195 million wireless subscribers. However, consumers would be required to seek refunds individually, documenting how much they paid each quarter in separate claims.

The time limit for refunds is three years. A person entitled to a $50 refund would have to fill out forms a dozen times to get the three years’ worth of refunds permitted under tax law. Collecting records and preparing the form would take about seven hours.

And on that note, phone tax resistance seems to be getting a lot of attention these days. A San Francisco Chronicle article on the subject from a few weeks ago got picked up by papers coast-to-coast, and now a new Denver Post article is doing the rounds.