Taxation Without Representation

Taking on the Internal Revenue Service, in my book, or anyone else’s book, for that matter, would be more taxing than taking on the US Government. And if you think the IRS is part of the US Government, I’ve got news for you. They may be a federal agency, but they definitely act independently, and answer to no one. If they chose to audit the President, they could without any recourse, although they better have a damn good reason to justify doing so. The following is an example of how things are and how things should be. There’s nothing like a personal experience to enlighten the situation, and the subsequent jumping-through-hoops, often at the last minute, to solve a crisis and prevent an even-worse one, that being the loss of residence due to the inability to pay rent because of the initial crisis in the first place.

Let’s examine the details of my discovery, the theory based on what I was seeing, what I was going to do for the future, the subsequent backlash as a result of it, and how it differs from all other dilemmas regarding liens and garnishments unrelated to the IRS.

From the beginning, starting with my first job as a busboy at the age of 17, I’ve filed my taxes. Every year. On time. I received refunds for several years. In the beginning, I filed the 1040-A for a single person filing a single return, no deductions. Then, the process was made easier with the debut of the 1040-EZ. Even better. I was not married, had no kids, rented rather than owning a home, and didn’t have medical or any other bills to deduct. It was a simple process. List your income and what was paid out as taxes, and get your refund.

Somewhere along the way, the taxes owed began to exceed the taxes deducted. And I was filing as “1” dependent. So I started filing “0”, hoping that with an increased deduction, I would hopefully not have to owe. I received refunds for a few years after that. Then, someone told me by filing “0”, you’re lending the IRS money that you’re not getting any interest on when you get it back at the end of the year. I told them filing “0” was the only way to get a refund, since I wasn’t filing as “1”. And I’d rather lend it to them and get it back at the end of the year without interest, than to have to come up with additional funds to pay extra taxes if I had filed “1”..

I began thinking to myself, a theory that should be in practice, but obviously not. At least for the people only filing 1040-EZ. Stay with me. The IRS has an established tax structure to which businesses are required to adhere. Not all do. And that is to be expected. But I work in the financial district. Corporate environment. Not in retail. Not in a coffee shop. Not part-time. The corporate sector. Big Business. Where standards and practices are the same, no matter what office, company or industry you’re employed, as far as the IRS is concerned. And the corporate payroll deductions are structured to coincide with that of the IRS, in each and every tax bracket. I figured, since I filed the easiest of forms, without any deductions whatsoever, my payroll tax deductions should equal the same as what was owed, according to the IRS. Or so you would think. That’s the theory. This is the simplest of logic. It doesn’t get any more basic than that. But, then again, this was the IRS we’re dealing with here.

Somehow, this logic wasn’t working. I was owing, even though I was now filing “0”, with the intent of extra income being deducted, resulting in overpayment after filing “1” as a single dependent. I started filling it out in pencil to see if I owed. I had discovered a loophole. Legal, too. Halfway down the form is an instruction that if you chose to stop, and have the IRS fill out the rest, you could send it in and have them complete the form for you. In the process, they would send a refund or a bill, depending on the outcome. Simply send it in uncompleted, on April 15th, knowing, of course, exactly what you owe, and they would send a bill for the balance. This, obviously, took an extra couple of months. You, of course, received a bill with a due date 1-2 months later. So basically, you got a 3-4 month extension. This lasted only so long, of course. Out of frustration, I stopped filing. Not the smartest thing to do when dealing with the IRS, but I was young and brash, and hoping to force the issue out into the open. Uh, no.

Several years later, in an odd twist of events, the Payroll Department of my employer received a Notice of Garnishment. In the corporate sector, they usually notify you of this to give you an opportunity to correct the situation before your wages are garnished. Mine happened during the Thanksgiving holiday. Instead of sending the notice to my home, which was the standard procedure, they sent it to my work. Unfortunately, I took off the day before Thanksgiving and was not there to receive it. I didn’t get it until Monday. By then, it was too late. The papers were processed, and the wages were garnished. And here’s the difference I mentioned earlier about IRS garnishments that differ from all others.

Whenever your wages are garnished, for whatever reason, that being losing a court judgment, credit card debt liens, etc., the maximum percentage allowed by law is 25%. It is understood by the court that there are other expenses necessary to carry on the basic necessities of life – rent, utility bills, and food. Not the IRS. No, no, no. On my next check, the IRS deducted 70%. 70 fucking percent. Evidently, the IRS was not beholden to the 25% required by all other judgments. I had 3 days to file back years before my company’s payroll closed out for the next period. I tried explaining my theory to them. Uh, yeah. Thank God I had an understanding landlord. Makes you wonder just how many homeless are so as a result of an IRS or US Government screwjob.

How can I owe all these taxes when what is deducted was supposed to be equal to what I owed? Then it hit me. While it very may well have to do with the employer not deducting enough to match the IRS’s criteria, there was another possible reason. A more viable reason. The US Government. Taxes. Employers know from information received by the IRS, what percentage should be deducted from payroll. This happens at the beginning of the year, obviously. But then, things change. During the course of the year, tax bills become law. Do they go into effect at the beginning of the next year? Of course not. Do they go into effect immediately? Nope. They are immediately classified as retroactive.

All of the tax bills signed into law, don’t go into effect at the end of the year, or immediately. They are retroactive to the beginning of the current year. And in the process, what you owe goes up, but what is deducted, stays the same. This is why those who file the simplest forms, owe at the end of the year. Are employers informed of this, so as to adjust their current payroll deduction structure to coincide with the new law? Maybe. The best they can do is adjust it from that point forward. But only if their current payroll program allows them to do so. Retroactive is out of the question. Nowadays, everything is computerized, and program-based. Why do you think payroll programs based on tax bracket deduction structures only come out annually?! And most payrolls in the corporate sector are processed by an outside entity. (Can you say ADP?)

Bottom line: you owe from Day One. The tax brackets and the subsequent taxes owed for each of those brackets at the end of the year are based on tax laws put into effect either immediately, or retroactive to the beginning of the year, and most certainly will not match the established tax deductions according to the current year’s payroll software programs. Basically, the simple filers, 1040-EZ and 1040-A, are shit out of luck, and will always owe.

There are, however, three options. Two legal and one illegal. One is to just pay and not challenge or fight. It’s just not worth it. The second is to change jobs every two to three years. It is their job to catch you or catch up to you. Since it takes several years for them to catch up, and I think it is done on purpose, to rack up interest and penalty charges, simply change jobs and add a few more years onto their search. The third: intercept the garnishment so that it never makes it to Payroll. This is the most risky and can only be done if you work in the mailroom. The important thing to remember is that when this happens, it has to be dealt with immediately after interception. If nothing is done after they’ve sent the notice, they WILL call.

At the risk of revealing previous actions, I have to admit, I’ve done this once. As a result of dropping the ball after a previously-agreed-upon arrangement. I knew I could not take any time off for fear of running the risk of a single notice arriving in my absence. Stranger things have happened, though. Sure enough, a notice of garnishment came in and was subsequently intercepted. I wasn’t going to have 70% of my check deducted. No fucking way. After a period of time passed, and not calling on my part (the ultimate risk and a stupid one at that), I intercepted a second notice. Imagine my surprise upon reading that the garnishment was to be lifted. No reason was given. Huh?

Never look a gift horse in the mouth. I certainly wasn’t going to call them for an explanation. Needless to say, I still have outstanding issues, and I will deal with them. At the same time, I still stand by my theory about what I owe and what is deducted, should match. Of course, it helps to still work in the mailroom.