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The Social Security Act, which is part of Title 42 of the United States Code, was enacted in 1935 Title 26 of the United States Code, otherwise known as the Internal Revenue Code (“IRC”). "In the interpretation of statutes levying taxes it is the established rule not to extend their provisions by implication beyond the clear import of the language used, or to enlarge their operation so as to embrace matters not specifically pointed out. In case of doubt, they are construed most strongly against the government and in favor of the citizen." a reading of section 3101(a) shows clearly that the tax is not, in fact, a WAGE tax but rather is imposed on "income" which is MEASURED by "wages". Hence, the FICA tax is simply another INCOME tax. Wages. For purposes of this chapter, the term "wages" means all remuneration for EMPLOYMENT "employment" means any service, of whatever nature, performed (A) by an EMPLOYEE for the person employing him (I) WITHIN THE UNITED STATES, or |
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(II) on or in connection with an American vessel or American aircraft under a contract of service which is entered into WITHIN THE UNITED STATES or during the performance of which and while the employee Is employed on the vessel or aircraft It touches at a port in THE UNITED STATES .... United States. The term "United States" when used in a geographical sense includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam and American Samoa. hard to believe that the definition of the term "United States" could be limited to mean ONLY the four island possessions of Puerto Rico, the Virgin Islands, Guam and American Samoa. Consequently, it is very clear that the term "United States", when used to describe the areas where the "Social Security" tax applies, means, and IS LIMITED TO, the four island possessions which are the only areas listed in the term's definition. Therefore, according to the wording of the law itself, the FICA tax does not apply within the fifty States of the Union. The FICA tax is administered by the IRS as if it were a direct tax on individuals. To be constitutional, any direct tax on individuals must be imposed by law ONLY OUTSIDE the 50 States of the Union: i.e. only in the four listed island possessions Sec. 3401(c). Employee. For purposes of this chapter, the term "employee" includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term "employee" also includes an officer of a corporation. It is revealing that this definition INCLUDES the term "State" which is defined in Code section 7701(a)(10) as the District of Columbia (ONLY). Section 3401(d) identifies the "employer" as one for whom the "employee" works. This means that the meaning of the term "employer" is limited to those entities listed in section 3401(c) -- the U.S. government, District of Columbia, etc. The term does NOT apply to any non-government employer or business. In addition to those limitations on the application of the term "employee" shown above, section 1402(d) LIMITS the application of the term "employee" and the term "wages" to activities within the four island possessions ONLY. Therefore, the withholding provisions of chapter 24 can apply only to those working for the Federal government or the District of Columbia, etc., within these four island possessions -- not within the fifty States of the Union. IRC section 3402(a)(1) contains tricky wording which could readily lead businesses and individuals into erroneously believing that they are required to deduct and withhold taxes from the pay of those they hire. Note that the Secretary is authorized to provide for withholding by issuing tables, computational procedures and other instructional material on withholding that apply ONLY to those who have VOLUNTARILY AGREED to withholding. An agreement exists only when an individual who is hired voluntarily REQUESTS that money be deducted and withheld from his pay for payment of taxes and the one for whom he works completes the agreement by his VOLUNTARY act of collecting money as an unpaid tax collector for the government. Mandatory withholding would conflict with two key provisions in the U.S. Constitution: the Fifth Amendment right to due process states that no person shall be deprived of property (having his pay withheld) without due process of law (a ruling by a court) and the Thirteenth Amendment prohibition against slavery and involuntary servitude, such as being forced to be an unpaid worker (slavery) or an unpaid Federal tax collector. Sub-Section 31.3402(p)-1 Voluntary withholding agreements. (T.D. 7096, filed 3-17-71; amended by TD 7577, filed 12-19-78). (a) In general. An employee and his employer MAY enter into an AGREEMENT under section 3402(p) to provide for the withholding OF INCOME TAX upon payments of amounts described in paragraph (b)(1) of Sub-Section 31.3401(a)-3, made after December 31, 1970. An agreement MAY be entered into under this section only with respect to amounts which are includible in the gross income of the employee under section 61, and must be applicable to all such amounts paid by the employer to the employee. The amount to be withheld PURSUANT TO AN AGREEMENT under section 3402(p) shall be determined under the rules contained in section 3402 and the regulations thereunder. i) Except as provided in subdivision (ii) of this subparagraph, AN EMPLOYEE WHO DESIRES TO ENTER INTO AN AGREEMENT under section 3402(p) SHALL FURNISH to his employer Form W-4 (Employee's Withholding Allowance Certificate) executed in accordance with the provisions of section 3402(f) and the regulations thereunder. The furnishing of such Form W-4 shall constitute a REQUEST FOR WITHHOLDING. "... an employee who desires to enter into an agreement" and "REQUEST for withholding", "DESIRES withholding" and "mutually agree upon", all of which clearly and unambiguously show the VOLUNTARY nature of the entire withholding system. "The furnishing of such Form W-4 shall constitute a REQUEST FOR WITHHOLDING ...." "Employee's Withholding ALLOWANCE Certificate". To have a non-deceptive, clear-meaning heading, the words could be rearranged to "Employee's Certificate ALLOWING Withholding". Sec. 3402(p)(2). An AGREEMENT under section 3402(p) shall be effective for such period as the employer and employee MUTUALLY AGREE upon. However, EITHER THE EMPLOYER OR THE EMPLOYEE MAY TERMINATE THE AGREEMENT PRIOR TO THE END OF SUCH PERIOD BY FURNISHING A SIGNED WRITTEN NOTICE TO THE OTHER. Unless the employer and employee AGREE to an earlier termination date, the notice shall be effective with respect to the first payment of an amount in respect of which the AGREEMENT is in effect which is made on or after the first "status determination date" (January 1, May 1, July 1, and October 1 of each year) that occurs at least 30 days after the date on which the notice is furnished. If the employee executes a new Form W-4, the request upon which an AGREEMENT under section 3402(p) is based shall be attached to, and constitute a part of, such new Form W-4. Most employers, as well as their accountants and attorneys, have never studied the IRC carefully enough to understand its complexity. They are not aware of the geographical and other limitations in the Social Security (FICA) tax, and upon the withholding provisions in chapter 24 of the IRC. They do not understand (as explained earlier in this article) that the FICA tax and the withholding provisions apply only within Puerto Rico, the Virgin Islands, Guam and American Samoa; that under chapter 24, withholding is not mandatory for either the employer or the employee, and that the withholding provisions apply ONLY to cases where BOTH the employer and the employee voluntarily agree to the withholding. If a non-government employer considers NOT withholding when his employees demand their full pay and consults his accountant, tax lawyer or the IRS about the matter, his attention is usually called to IRC section 3403. Sec. 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. This section usually erroneously convinces non-government employers that they are personally liable to pay to the IRS the amount the withholding tables specify EVEN IF THEY DO NOT WITHHOLD THE MONEY FROM THEIR EMPLOYEES PAY. Non-government employers rarely understand that the term "employer" used in this section does not apply to them because the term "employer" as defined in the withholding provisions, means ONLY FEDERAL GOVERNMENT RELATED AGENCIES AND INSTRUMENTALITIES (listed in section 3401(c) quoted earlier in this article). Even then, withholding applies ONLY within the four island possessions and then only when there is a VOLUNTARY MUTUAL AGREEMENT for withholding requested by the "employee" and agreed to by the "employer". Because of these facts, there is no way a non-government employer within the 50 states can be required to withhold tax under chapter 24. He cannot be "LIABLE" for payment of the tax unless he voluntarily acts as an unpaid tax collector for the government. As shown herein, the FICA tax imposed on workers under the provisions of section 3101 is a territorial income tax which applies ONLY in the four island possessions. The regulations implementing the withholding provisions in the IRC clearly show that all withholding is voluntary for all individuals -- both government employees, (under 3402(p)(l)(A)) and non-government workers (under 3402(p)(3)). In order to institute withholding, a voluntary REQUEST must be made by the employee and ACCEPTANCE must be made by the employer. A student of the Code will find that FIVE other definitions of the term "United States" therein: Sections 638(1), 927(d)(3), 3306(j)(2), 4612(a)(4) and 7701(a)(9), also define the term "United States" for RESTRICTED USE in various parts of the IRC. when a particular Code section intends to include "the fifty States" in its definition, it says so -- as in section 4612(a)(4). But, the term "United States" as defined in section 3121(e)(2) limits this FICA tax to the four island possessions. Disclosure of social security number. Act Dec. 31, 1974, P.L. 93-579, Section 7, 88 Stat. 1909, provided: "(a)(1) It shall be unlawful for any Federal, State or local government agency to deny to any individual any right, benefit, or privilege provided by law because of such individual's refusal to disclose his social security account number. "(2) the provisions of paragraph (1) of this subsection shall not apply with respect to -- "(A) any disclosure which is required by Federal statute, or "(B) the disclosure of a social security number to any Federal, State, or local agency maintaining a system of records in existence and operating before January 1, 1975, if such disclosure was required under statute or regulation adopted prior to such date to verify the identity of an individual. "(b) Any Federal, State, or local government agency which requests an individual to disclose his social security account number shall inform that individual whether that disclosure is mandatory or voluntary, by what statutory or other authority such number is solicited, and what uses will be made of it." |
