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Columns: Tax Talk
George Saenz, CPA   Expert: George Saenz, CPA
Tax Talk
Misinformed about filing W-4, couple fears severe IRS action
Tax Talk

Claiming exempt status

Dear Tax Talk:
My fiance got some bad information from a co-worker at work. We have had it hard due to some medical issues with me, and my fiance was talking to someone at work and his friend advised that we should file exempt on our W-4, so we did. He makes about $79,000 a year, so we owe a substantial amount, but we will be able to pay by the time taxes are due because I am now able to work again.

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We found out recently that we were misinformed, and it is illegal to do this. Now we are extremely worried about getting into trouble. When I looked it up on the IRS Web site, it stated you can get imprisoned or fined. Anyone have any advice? Do they only prosecute if you are a repeat offender?

I know it was our responsibility to keep up with tax laws, and we should have double-checked what we were told, but when we talked to payroll they also stated he could do this. He works for the federal government, and I am sure they would frown upon any criminal conviction whether we knew we were breaking the law or not.

Any help would be greatly appreciated; we are really worried. Thank you. We would have never done it if we knew it was illegal, so this was the first time. Does the IRS look at your prior tax history? We never did this before, which we hope they will take into consideration.
-- Jessica

Dear Jessica,
While what you did may not be right, it is not the kind of criminally wrong thing that the IRS would go after you for. It used to be that an employer would have to forward to the IRS W-4 forms that claimed exempt if the employee was not a student. This forwarding requirement was eliminated in 2005, probably because it was overwhelming for the IRS and not a good use of their resources.

While the IRS no longer requires Forms W-4 be forwarded to them, I'm sure they look at folks that consistently have no tax withheld from their payroll and don't otherwise pay the balance due with their return. These folks are most likely taking a frivolous position that the tax laws do not apply to them. In other words, they are tax protestors. Since you're planning to pay what you owe and it is not a recurring problem, the IRS most likely will not bother you.

Bankrate.com's corrections policy -- Posted: Dec. 13, 2007
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