Jack Cohen’s treatment of portions of the Treasury Financial Manual should provide orientation
for collection of Chapters 21 & 24 (Subtitle C) taxes from government employees. I’ve covered
portions of this subject in various memorandums posted on the LR&R web page and in several
email posts.
Unlike taxes in Subtitles A & C of the Internal Revenue Code, those in Subtitle C, including social
welfare and government personnel taxes, are generally treated in 26 CFR Part 31, as opposed to
other species of income tax in Subtitles A & B, and procedure is for the most part found at 5
U.S.C. §§ 5512 through 5520a.
The TFM sections Jack treats in his article give the impression that IRS can levy wages of
Federal employees without a court order, but by reading 5 U.S.C. § 5512, it will be clear that that
isn’t the case. If the employee voluntarily submits, that’s one thing, but if he or she contests the
alleged obligation, the Attorney General must initiate suit. Fifth Amendment due process
requirements ar preserved. Process is in debt collection procedure in Chapter 176 of Title 28, and
you will find that no more than 25% of take-home pay can be garnished at one time.
Intragovernmental regulations don’t have to be published in the Federal Register; see 5 U.S.C. §
301. That’s the reason regulations for 26 U.S.C. § 6331 are all listed under 27 CFR § 70, which
has provisions relating to government personnel, but not in 26 CFR Parts 1 or 31.
Dan Meador
Article by Jack Cohen by way of John Field at Taxgate
Worthy of reading!
For those who have been hearing about or investigating the CAFR
(Centralized
Accounting Financial Reports) adopted by the federal government and most
States, I am sure you will find the following excerpts from the
Treasury
Department’s Financial Manual most interesting. The TFM is the controlling document for
accounting of, as it says below, ALL receipts and disbursements of the federal government.
For a long time, I have suspected that the bulk of the income tax laws apply only to the
government. The TFM confirms my long-held suspicions.
Note carefully that the EIN (Employer Identification Number) is for government agencies and
government employers. The myth that the Social Security number is what ties the Citizen to the
tax system is finally blown!
It’s the EIN that ties the employer to the system, and thereby his employees.
TREASURY FINANCIAL MANUAL
SECTION 1010.15 - INTRODUCTION
The Treasury Financial Manual (TFM) is Treasury’s official publication
for
financial accounting and reporting of all receipts and disbursements of
the
Federal Government. The Secretary of the Treasury has this
responsibility as
set forth in 31 U.S.C 331 and 3513. Other statutes and Executive Orders
specifically place regulatory responsibility with the Department of the
Treasury for other subject matter covered in the TFM. Treasury’s
Financial
Management Service (FMS) issues the TFM to provide policies, procedures,
and
instructions for Federal departments and agencies, Federal Reserve banks
(FRBs), and other concerned parties to follow in carrying out their fiscal responsibilities.
VOLUME I
Updated May 17, 2000
Volume I applies to all Federal agencies and contains instructions in the areas of central
accounting and reporting, payrolls, deductions and withholdings, disbursing, deposit regulations,
and other fiscal matters.
Part 3--Chapter 4000
FEDERAL INCOME, SOCIAL SECURITY AND MEDICARE TAXES
(T/L 590)
This chapter prescribes procedures agencies must follow to withhold and deposit Federal income,
Social Security and Medicare taxes on wages paid to civilian and military employees; file tax
returns with the Internal Revenue Service (IRS); and file income tax statements with the Social
Security Administration (SSA).
Section 4010-Scope and Applicability
Refer to IRS Publication 15, Circular E, Employer’s Tax Guide. Circular E describes employer tax
responsibilities for withholding, depositing, reporting and paying taxes. It explains the forms
employees use and employers send to IRS and SSA. Also see Publication 15-A, Employer’s
Supplemental Tax Guide. For additional information, contact an IRS service center.
(Those of you who have read my American Liberty vs. Forced Withholding might recall that that
Pub 515 is for employers of nonresident aliens, and that Pub 15 is for government employers.)
Agencies transfer withheld Federal taxes to the IRS through FEDTAX II, the electronic system
used by agencies whose funds are dispersed by the Department of the Treasury (Treasury).
Federal agencies not on this system must contact FEDTAX II customer service at 1-877FEDTAX2 or the Financial Services Division, Financial Management Service (FMS), at FTS 8746580 or 202-874-6580.
Section 4015-Authority
Internal Revenue Code (IRC) [Title 26 of the United States Code (U.S.C.)] provisions authorize
procedures for Federal income tax withholding and Social Security and Medicare taxes under the
Federal Insurance Contributions Act (FICA). Under IRC section 3306©(6), services performed in
the U.S.
employ are excepted from the tax imposed under the Federal Unemployment Tax Act (FUTA).
Section 4020-Federal Withholding Rules
4020.10-Specific Rules
IRC section 3122 gives the head of a Federal agency, or the designated delegate, the authority to
determine:
Whether the services performed by Federal employees constitute employment.
The periods of such employment.
Whether the remuneration paid for such services constitutes wages.
IRC section 3402(a) requires Federal agencies to deduct and withhold
Federal
income taxes from wages exceeding the total amount of withholding
exemptions. If the employer is the United States or an agency or
instrumentality of the United States, an officer or employee with
control of
the payment of wages may make the tax return for the amount deducted and
withheld. (See IRC section 3404.)
IRC section 3101 imposes the employee portion of Social Security and Medicare taxes on wages.
IRC section 3102 requires the employer to withhold these amounts from wages.
IRC section 3111 imposes the employer portion of the Social Security and
Medicare taxes on wages.
4025.60-Submission Requirements for Form W-4
Agencies must submit a copy of Form W-4 to the IRS if an employee claims:
Ten or more withholding allowances.
OR
Exemption from withholding and the employee earns more than $200 a week.
Before filing the FEDTAX Form 941: Employer’s Quarterly Federal Tax Return, send Forms W-4
to the local IRS service center with a cover letter. The cover letter must include the agency name,
address, employer identification number (EIN), and number of forms attached. Alternatively,
attach the Forms W-4 to a paper Form 941.
The IRS informs an agency in a written notice that an employee’s Form W-4 is defective. The
agency must provide the employee with a copy of the notice.
It should withhold based on the maximum number of allowances in the notice.
This applies unless the employee files a new Form W-4 consistent with the notice. IRC section
3122 gives the head of a Federal agency, or the designated delegate, the authority to determine:
Whether the services performed by Federal employees constitute employment.
The periods of such employment. Whether the remuneration paid for such services constitutes
wages.
IRC section 3402(a) requires Federal agencies to deduct and withhold
Federal
income taxes from wages exceeding the total amount of withholding
exemptions. If the employer is the United States or an agency or
instrumentality of the United States, an officer or employee with
control of
the payment of wages may make the tax return for the amount deducted and
withheld. (See IRC section 3404.)
IRC section 3101 imposes the employee portion of Social Security and Medicare taxes on wages.
IRC section 3102 requires the employer to withhold these amounts from wages.
IRC section 3111 imposes the employer portion of the Social Security and
Medicare taxes on wages.
4025.70-Expiration of Exempt Form W-4
Employees who claim exemption from withholding must submit new Forms W-4
by
February 15. If they do not do so, the agency must withhold taxes as though the employee was
single, claiming zero exemptions. Section 4030-Federal Insurance Contributions Act (FICA) IRC
section 3102 requires employers and Federal agencies to deduct and withhold the employee
portion of FICA taxes from wages paid to employees.
IRC sections 3111 and 3112 mandate that Federal agencies pay the employer portion of the
FICA tax. FICA taxes consist of two types:
Old-Age, Survivors and Disability Insurance (OASDI) [IRC sections 3101(a) and 3111(a)].
Hospital insurance (Medicare tax) [IRC sections 3101(b) and 3111(b)].
4030.10-Civilian Employees Hired before January 1, 1984 Civilian employees hired before
January 1, 1984, who are covered under the Civil Service Retirement System (CSRS) are subject
only to the Medicare tax.
See IRC sections 3121(b)(5) and 3121(u)(1).
4030.20-OASDI and Medicare Taxes
IRC imposes both OASDI and Medicare taxes on:
Federal employees hired on or after January 1, 1984. These include
employees who have experienced a break in Federal service of 366 or more
days.
Legislative branch employees not participating in the CSRS as of December 31, 1983.
Members of Congress, the President and the Vice President.
Sitting Federal judges, executive level and noncareer appointees in
the
Senior Executive Service, and noncareer members of the Senior Foreign Service.
4030.30-Employees Not Covered for Social Security and Medicare under the IRC Under the IRC,
employees not covered by Social Security and Medicare include:
Inmates of U.S. penal institutions.
Student nurses, student dietitians, and student physical or
occupational
therapists described in 5 U.S.C. section 5351(2).
This exemption is limited to those attached to a hospital or clinic,
etc., operated by the U.S. Government. Sections 4030.10 and 4030.20 describe rules for medical
or dental interns or residents in training.
Individuals serving under temporary conditions connected with emergencies caused by fire,
storm, earthquake, flood or other similar emergencies.
Section 4035-Corrections of Withholding and FICA Tax Errors If the employee is still on the
agency’s payroll, the agency should correct any clerical error in withholding income taxes made in
the current calendar year. The agency should adjust the deduction for the current pay period to
offset the error in the employee’s withheld income taxes and net pay. The employer makes no
adjustment if the error occurred in a prior calendar year or the employee is no longer on the
payroll. In that case, the employee makes the adjustment when filing an individual Federal
income tax return.
Agencies should correct errors in withholding FICA taxes on Form 941.
They
must also explain the correction using Form 941c: Supporting Statement
to
Correct Information. FEDTAX Form 941 filers fax the Form 941c to the IRS
Memphis Service Center. Agencies that cannot make such adjustments may claim a refund by
filing Form 843: Claim for Refund and Request for Abatement.
Refer to Circular E and the FEDTAX II User Guide for further instructions.
Section 4040-Privacy Act Requirements
According to the Privacy Act of 1974, each agency must publish notices
for
routine use in the Federal Register. These notices must indicate
information
routinely disclosed by the agency to IRS and SSA and the circumstances
under
which such disclosure is made.
If the agency uses Federal forms that do not include a Privacy Act notice, it must provide a Privacy Act
notice to the employee from whom information is solicited. A suggested notice follows:
Executive Order 9397, dated November 22, 1943, mandates that the Social Security number be
included for identification purposes. Under 26 U.S.C.
3401-04, other information is required for collecting taxes at the
source by
withholding from wages. This information is used to compute the amount
withheld. If it is not furnished, a violation of the Internal Revenue
laws
may occur.
Section 4045-Accounting for Taxes
4045.10-Withheld Taxes
Each pay period, agencies separately record in employees’ permanent earnings records withheld
Federal income, Social Security and Medicare tax amounts.
They report these taxes separately through FEDTAX II and EFTPS.
4045.20-Employer’s Social Security and Medicare Taxes
Each agency with employees covered by Social Security and Medicare taxes
must pay employment tax on the employees’ salaries and wages. The agency
disburses this tax each pay period from the payroll appropriation. It
makes
one payment, combining the amount of employment tax and the amount of
tax
withheld from employees’ wages.
Section 4050-Payment of Taxes
4050.10-Check Issue
Agencies should issue paper checks for payment of Federal taxes only as an exception to
electronic deposit. Agencies whose funds are Treasury disbursed should use FEDTAX II. Those
whose funds are disbursed from a commercial financial institution should use EFTPS.
4045.20-Employer’s Social Security and Medicare Taxes Each agency with
employees covered by Social Security and Medicare taxes must pay
employment
tax on the employees’ salaries and wages. The agency disburses this tax
each
pay period from the payroll appropriation. It makes one payment,
combining
the amount of employment tax and the amount of tax withheld from
employees’
wages.
Section 4075-Levy for Unpaid Tax Liability
IRC provisions permit district directors to collect delinquent Federal
taxes
by levy on the accrued salary or wages of any officer, employee or
elected
official of the United States or the District of Columbia. Since this
levy
is served against the take-home pay of the employee, once the levy is
served, agencies should not permit an employee to increase any voluntary
allotment until the tax liability is liquidated or other arrangements satisfactory to the IRS are
made.
4075.10-Service of Levy
An IRS employee (agent) serves notice of levy on wages, salary and other
income of individuals designated under section 4075.20. The IRS can serve this notice in person
or by mail. Service by mail is limited to the United States, its territories and possessions, and
ships at sea. A notice of levy includes an original and four copies. All copies should be signed
and dated, with the time of receipt noted on the forms. The agency should return the original to
the IRS employee. The employing agency keeps one copy. IRS or the employing agency sends
another copy to the employee. The person designated in section 4075.20 must honor all
applicable notices of levy, whether served in person or received by mail. The General Accounting
Office makes no disallowance nor does it raise charges against any disbursing officer or
designated person for complying with notices of levy.
4075.20-Designating Individuals to Receive Service of Notice of Levy Each Government agency
should designate one or more persons on whom notice of levy for delinquent taxes of its
employees may be served. These designees receive written statements from such employees
regarding exemptions for dependents as provided for in the IRC.
4075.30-Minimum Exemption from Levy for Wages, Salary and Other Income A check to the
employee each pay period includes exempt take-home pay and the amount by which the
nonexempt take-home pay exceeds the levy amount.
Refer to the IRC for specific exemptions and related procedures, or
contact
the local IRS office.
4075.40-Continuing Levy on Salary and Wages
The levy on salary or wages continues from the date the levy is first
made
until the levy is released.
4075.50-Liquidation through Payroll Deductions
An employee may arrange with the IRS to liquidate a tax liability through payroll deduction. IRS
Form 2159: Payroll Deduction Agreement, authorizes such payroll deductions. The employee and
a revenue officer (or other authorized IRS agent) must sign Form 2159. Send the original to the
payroll office. The employing agency deducts the amount agreed upon from the employee’s
salary until the total tax liability is liquidated.
4090.10-Definition of Applicable Agency
An applicable agency is an agency, or segment of an agency, represented
by a
particular IRS-assigned EIN.
There are no provisions of the TFM that apply to those who do not work
for
the government. Income tax withholding by private employers is not
based on
the law. So, you see, all this baloney we hear about income taxes being
deducted from our pay is built on misrepresentation of the law by IRS
employees, who get their marching orders directly from Congress. You
may
have to read through this material a few times to realize that what you
are
reading here is
“Democracy is two wolves and a lamb voting on what to have for lunch.
Liberty is a well-armed lamb contesting the vote.”
Benjamin Franklin, 1759
Prepared for you by Jack Cohen,