The Employer & The Income Tax


     In 1944 the United States government expanded the authority in the law to withhold income taxes to include the “employer”.  Subtitle C, implementing for the first time in the United States the collection of “Employment Taxes”, was added to the Title 26 statutes at this time.  Up until this point in time (1944), the income tax had only been withheld from foreign persons because the Withholding Agents were only authorized to withhold income tax from non-resident aliens and foreign corporations, as we have shown, and there were no other entities authorized anywhere in the law to withhold income tax. 


     In 1944, new laws were added that expanded the authority to withhold income tax, which up until this time had been an authority defined strictly in terms of withholding from “foreign” non-resident entities.   But in 1944, the authority to withhold income tax was expanded to include an “employer” making payment of “wages” to an “employee” under Section 3402(a). 


     It is important to understand that the existing definition and powers of the Withholding Agent to withhold income tax did not change, they remained the same as they were previous to 1944.   However, another entity, the “employer”, is authorized for the first time in 1944 to also begin withholding income tax.  So the Withholding Agent withholds tax under Subtitle A (which was enacted in 1913), and the employer withholds income tax under Subtitle C (which was enacted in 1944).


     This expansion of the definition of the authority to withhold income tax, to apparently empower the employer to withhold the tax from wages paid to employees, has made it very easy for the United States government to deceive the American people since 1944 into believing that they are the subject of the income tax through their relationship with their employer.  However, the actual language of the whole statute that authorizes the withholding makes it very clear that is not true because there are exceptions in the law that the employer must recognize and honor.  It is important to understand that the income tax law itself was NOT changed to expand the actual application of the income tax to include employees, i.e.: no income tax is IMPOSED in Subtitle C on employees, it is just authorized to be withheld from them by the employer.


     However, the government has built a system of de-facto operations that is taking advantage of the average citizen’s ignorance of the extremely technical interactions invoked by the specific language of the code sections, and has established a system wherein the citizen is absolutely required to have a nearly perfect knowledge of the law in order to understand that these income tax withholding provisions of Subtitle C in Section 3402(a), do not apply to him or her.


     So, it is important to understand that while the authority to withhold income taxes appears to have been expanded in Subtitle C by Section 3402(a), which we will examine in a moment, in reality it has not, because while the Subtitle C statute appears to authorize the withholding of income tax from “wages”, it does not actually expand the group of persons whom the income tax was (and is) actually imposed upon under the law, – AND THE STATUTE ITSELF MAKES PROVISION FOR THAT REALITY.


     The authority of the “employer” to withhold income tax from the “wages” of the “employee” under the Subtitle C authorities, as you will see, is hinged upon the employee’s ignorance of the actual provisions of the Subtitle A income tax laws. 


     The authority of the “employer” to withhold income tax from the “wages” of the “employee” is established in Title 26 U.S.C. Section 3402(a).  It states:


§ 3402. Income tax collected at source


     (a) Requirement of withholding

     (1) In general

 Except as otherwise provided in this section, every employer making payment of  wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary ...      


     Note that the very first sentence of this statutory authority to withhold income tax from wages is prefaced by the clause "Except as otherwise provided in this section".     Does that sound relevant?


     The complete and actual authority to withhold income tax from wages under this statute (3402) is not entirely stated in subsection (a), which is where most people stop reading the law.  The true authority is clearly identified by the specific language of subsection (n) of this same section (3402).  Subsection (n) of Section 3402, states:


(n) Employees incurring no income tax liability


Notwithstanding any other provision of this section, an employer shall not be required to deduct and withhold ANY tax under this chapter upon a payment of wages to an employee if there is in effect with respect to such payment a withholding exemption certificate (in such form and containing such other information as the Secretary may prescribe) furnished to the employer by the employee certifying that the employee -


(1)   incurred no liability for income tax imposed  
        under subtitle A
for his preceding taxable year, and

(2)   anticipates that he will incur no liability for income tax imposed
        under subtitle A
for  his current taxable year.


The Secretary shall by regulations provide for the coordination of the provisions of this subsection with the provisions of subsection (f). ... (emphasis added)



     Please, carefully note that subsection (n) clearly states that no income tax is withheld from the employee if that employee certifies that he or she has no liability for income tax under Subtitle A.  This, of course, is in recognition of the fact that the income tax of Subtitle A is not actually imposed on all persons, but rather, is only imposed on, and withheld from, non-resident aliens and foreign corporations.  The purpose of this code subsection, (n), is to make lawful provision for those persons upon whom the income tax is not imposed in Subtitle A, to avoid in Subtitle C the withholding of tax that they are not required to pay.


     Now, as we all have seen and now know, the only liability for income tax that is established in the law in Subtitle A is the liability under Section 1461 of the Withholding Agent for the tax that he has withheld from those subject foreign persons.  Additionally, we have identified that Treasury Decision 2313 also stated that non-resident aliens were liable for payment of the income tax on all of their trade and business as well. 


     So, if you are not a non-resident alien, but an American citizen, and you do not act in the capacity of a Withholding Agent in dealing with foreign persons that you withhold tax from (which most citizens do not), then - if  you certify to your employer that you have no liability for income tax under Subtitle A, which you can honestly do (and prove with this book), then this statute says that your employer does not have to withhold ANY (income) tax from your wage payments. 


     Now, could that be any simpler?  But you do see that the withholding of income tax from an employee’s wages by the employer is dependent upon the employee’s ignorance of the statutory liability specifications for income tax established in the law in Subtitle A? 


     One should also note that Subsection (f), whose provisions the Secretary is commanded to coordinate with the provisions of this subsection (n), is entitled:  "(f) Withholding exemptions".


     To be clear and complete we should all note that the employee also does not have any liability for income tax under the statutory provisions of Subtitle C.   Section 3403 is the only statute that specifies liability for payment of the income tax in Subtitle C, just like Section 1461 was the only statute that specified liability for the payment of the income tax in Subtitle A.    Section 3403 states:


§ 3403. Liability for tax


The employer shall be liable for the payment of the tax required to be deducted and withheld under this chapter, and shall not be liable to any person for the amount of any such payment.


     Wow!  Unbelievable!  Again, in the law we find that the tax is (still) an INDIRECT tax, collected indirectly, by withholding from subject persons (who must now know whether or not they are subject, whereas before, it was just taken from the taxpayer because they were foreign and not resident). 


     And the only liability that exists in the law in Subtitle C for the payment of the income tax is, again, the liability of the person who has collected the tax by withholding (the employer), just like in Subtitle A (the Withholding Agent), keeping the tax and its collection indirect by, again making provisions to shift the burden from the employer to the subject employee, just as the burden was shifted in Subtitle A from the Withholding Agent to the foreign subject taxpayer.  In Subtitle C it is the employer, and not the employee, who is legally liable for the payment of the income tax that has been withheld from employees under the provisions of Subtitle C’s Section 3402.  But the employer is of course only liable for tax where money is actually withheld from wage payments.  If no money is actually withheld by the employer, then there can be no liability actually incurred in the name of the employer.


     If an employer does not deduct and withhold from wage payments to an American citizen because that citizen has certified that they have no liability for income tax under Subtitle A in the preceding year and anticipates that they will have no liability for income tax under Subtitle A in the current year (as specified in subsection (n) of Section 3402), then the employer does not have to withhold any income tax from the employee’s wage payments, and the employer is not liable for the payment of any tax on those exempt payments, and the employer cannot be made liable for any tax, interest, or penalties associated with the failure to deduct tax under Section 3402(a) from those wage payments, because in the clear language of subsection (n) he has a statutory exemption requirement that he must honor.


     Now one might object that it is wrong to take (by withholding) pay from someone, allegedly for tax, when that person is not actually subject to the tax, but the government has this angle taken care of too.  While the government tells the citizens that it is Section 3402(a) under which the withholding of income tax from citizens is required and takes place, it is actually Section 3402(p), because as we have shown, there is no requirement under subsection (a) that would apply to a citizen (who certifies that he is not liable under Subtitle A).  Without an establishment of liability for income tax under Subtitle A, there should be no withholding of income tax from anyone under Subtitle C, unless of course, there is an agreement between parties allowing for such withholding.  Subsection (p) of this same code section, 3402, makes just such a provision:



(p) Voluntary withholding agreements

(3) Authority for other voluntary withholding

The Secretary is authorized by regulations to provide for withholding—


(A) from remuneration for services performed by an employee for the employee’s employer which (without regard to this paragraph) does not constitute wages, and


(B) from any other type of payment with respect to which the Secretary finds that withholding would be appropriate under the provisions of this chapter,


if the employer and employee, or the person making and the person receiving such other type of payment, agree to such withholding. Such agreement shall be in such form and manner as the Secretary may by regulations prescribe. …



     Do you know what form the agreement takes?  You should, you signed it.  It’s often called a W-4, but the actual name of the form is printed in big black letters right on the top of it.  We all just ignore what it says without thinking because we have been told we have to do this (which is not true for American citizens). 


     The complete name of the agreement (form W-4) is Employee’s Withholding Allowance Certificate.



      You do know what “Allowmeans, right?


So, if you want to lawfully terminate the withholding of income tax from your wages by your employer,