In another thread manny posted this:
Why are tipped employees required to kick in the “employer’s contribution” to FICA?
Let’s just put it this way…you want your Social Security (just say yes for the sake of argument)? You want your Medicare (ditto)? You want all of the other great things the government does for you (just go with the flow, all of you militia types)? Then pony up the bucks like the rest of us, bucko.
Actually, you could think of the FICA tax as a “forced savings plan,” basically a savings account with the federal government with automatic withdrawals from your paycheck. It’s really not that bad of a deal…and really not a “tax.”
(Let’s see how long this one lasts before someone posts some URL showing how I’m wrong :-P.
S
Financial Advisor
Big Financial Advising Company
It’s because a tipped employee has flexible earnings and you (as the employee) are supposed to be paying taxes on what you actually make (including tips). So, in theory, the employer is supposed to pay you more since they aren’t paying their share of taxes. In reality, most employers say “ha ha ha ha ha ha ha ha ha ha.”
seth, I think you’ll have a hard time selling the notion that the Social Security Tax is not a tax. At least to me.
It is sometimes characterized as a “forced savings plan” but it has always been a “pay as you go” operation. This year’s income is used to pay this year’s costs. A savings plan implies your money is “saved” for you somewhere. Social Security doesn’t even pretend to operate this way. The money I pay is used to pay the benefits for some retiree somewhere. Not objectionable (perhaps) but that’s fairly typical of a tax.
Point taken, but remember that your SS benefits (at least, in theory) are guaranteed by the full faith and credit of the US government. So even if the dollar bills I put in aren’t stuffed in a Ziploc bag with my name on it, I still look at it more as a savings plan than a tax.
Well color me stoopid but doesn’t the phrase “employer’s contribution” indicate that the employer is paying for part of the FICA tax?
Is it different for tipped employees, and why?
Well, they’re not really self-employed, at least in standard usage of the term, but in a sense they are. They are free agents, like salesmen on commission or taxi drivers. Take a restaurant with a poorly-paid but well-tipped wait staff. It wouldn’t be too big a change to say, okay, we’re not going to hire a wait staff at all, but we’ll allow gypsy cabs into the restaurant (minus the automobile), who can hire out to individual customers in half-hour stints as Order Communication and Food Transporation contractors. The restaurant wouldn’t pay the gypsy-cabs-without-cars a dime, instead of paying wait staff a pittance. The only difference would be, there’s no real negotation about price between customer and food-carrier, since that is all done silently, after the service is provided.
2sense,
Cite1: ‘IRM Abr & Annot 104.6.7.12’ titled “Employment Tax on Tip Income”
The IRM (Internal Revenue Manual) explains under section 3 of (Cite1) that:
“The employer is required to collect employee tax only on tips which are reported by the employee to the employer. If the amount of employee tax on tips exceeds the wages under the control of the employer, the employee may furnish to the employer money equal to the amount of such excess. Begining in 1989, the employer is liable for his share of FICA tax on tips reported by the workers under IRC 3121(q).”
Notice the structure of this explanation. For instance, the use of the word “may” with respect to payment of the excess of tax liability. By the way, IRC stands for ‘Internal Revenue Code’ which is the name of Title 26 of the United States Code. Consult http://uscode.house.gov for more information.
I hope the above quote is useful to you.
My question to you is this: Do you know for certain that you rightfully work within an employer/employee relationship? If so, what kind of employee are you? Statutory, Common Law, Section 530, etc? Did it ever cross your mind that FICA might not even apply to you, and therefore be voluntary?
Cordially,
Pendency!
While that’s a quaint idea, I’d just like to say, as a Financial Advisor, that you would be nuts to try and say you are exempt from FICA tax. That’s one of the easiest ways for the IRS to throw you in jail. And, if I’m right, the wages you earn there hammering license plates are subject to FICA tax.
sethdallob,
Please allow me to show you what I have found in the United States Code, under Title 26.
Subtitle C of Title 26 is where I find the section known as “Employment Taxes”
Subtitle C of 26 U.S.C. consists of six chapters. These chapters are:
21… Federal Insurance Contributions Act
22… Railroad Retirement Tax Act
23… Federal Unemployment Tax Act
23A… Railroad Unemployment Repayment Tax
24… Collection of Income Tax at Source on Wages
25… General Provisions Relating to Employment Taxes
As you can see, the only chapters we could possibly be interested in (for this particular issue) are 21, 25, and 24 if there is a tax imposed on us that may be collected under this chapter.
The first chapter I look at is chapter 21 (FICA).
I find that Chapter 21 contains three subchapters, they are:
A. Tax on Employees
B. Tax on Employers
C. General Provisions
Well, assuming (and I hate to do it) that I am an employee, I go to Subchapter A of Chapter 21 of Title 26.
There are only two sections contained in this subchapter.
Section 3101. Rate of Tax
Section 3102. Deduction of tax from wages.
Section 3101 Reads:
"*(a) Old-age, survivors, and disability insurance.
In addition to other taxes, there is hereby imposed on the **income** of every individual a tax equal to the following percentages of the **wages (as defined in section 3121(a))** received by him **with respect to employment (as defined in section 3121(b))** -
In cases of wages
received during:............. The rate shall be:
1984, 1985, 1986, or 1987........... 5.7 percent
1988 or 1989................................ 6.06 percent
1990 or thereafter.......................... 6.2 percent.
(b) Hospital insurance.
In addition to the tax imposed by the preceding subsection, thereis hereby imposed on the **income** of every individual a tax equal to the following percentages of the **wages (as defined in section 3121(a))** received by him **with respect to employment (as defined in section 3121(b))** -
(1) with respect to wages received during the calendar years 1974 through 1977, the rate shall be 0.90 percent;
(2) with respect to wages received during the calendar year 1978, the rate shall be 1.00 percent;
(3) with respect to wages received during the calendar years1979 and 1980, the rate shall be 1.05 percent;
(4) with respect to wages received during the calendar years 1981 through 1984, the rate shall be 1.30 percent;
(5) with respect to wages received during the calendar year 1985, the rate shall be 1.35 percent; and
(6) with respect to wages received after December 31, 1985, the rate shall be 1.45 percent.
© Relief from taxes in cases covered by certain international agreements
During any period in which there is in effect an agreement entered into pursuant to section 233 of the Social Security Act with any foreign country, wages received by or paid to an individual shall be exempt from the taxes imposed by this section to the extent that such wages are subject under such agreement to taxes or contributions for similar purposes under the social security system of such foreign country.*"
As you can see for yourself, I have taken the liberty to bold the words which I feel are important to this section.
Now, lets look at the leading part of the definition of Wages:
"*(a) Wages
**For purposes of this chapter, the term ''wages'' means all remuneration for employment**, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include - *" (Remainder left out)
Don’t forget, we also have a contingency of the meaning of “Employment”:
"*(b) Employment
For purposes of this chapter, the term ''employment'' means any service, of whatever nature, performed (A) by an employee for the person employing him, irrespective of the citizenship or residence of either, (i) within the **United States**, or (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**, if the employee is employed on and in connection with such vessel or aircraft **when outside the United States, or**
(B) outside the United States by a citizen or resident of the **United States** as an employee for an **American employer (as defined in subsection (h))**, or
(C) if it is service, regardless of where or by whom performed, which is designated as employment or **recognized as equivalent to employment under an agreement entered into under section 233 of the Social Security Act**; except that such term shall not include -*" Remainder not included)
As we can see very clearly:
- “Employer” is differentiated from “American Employer”
- The term “United States” is used geographically.
- Subsections (A) and (B) are similar in nature and construction.
- Subsection © refers to an Agreement that some person may enter into.
Further along in Section 3121, we find the definition of United States:
"*(e)(2) United States.–
For the purposes of this chapter the term “United States” when used in a geographical sense includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
An individual who is a citizen of the Commonwealth of Puerto Rico (but not otherwise a citizen of the United States) shall be considered, for the purposes of this section, as a citizen of the United States.*"
Do you see that unless you enter into the agreement under section 233 of the Social Security Act, no where in the written law does an imposition of tax exsist on Americans who work within the several states, of which they are citizens of a particular state and the United States. To be precise in my meaning: The FICA imposes mandatory taxes on only three groups of people (see above).
My personal case being this: I was born an Jacksonville, Florida, thus making myself a citizen of Florida and the United States. (If you don’t understand this, please go study a copy of the United States Constitution.) As you have seen, the meaning of citizen and United States vary accordingly to the intent of the legislation. I have never entered into any agreement under section 233 of the Social Security Act (42 USC 233). It would appear that this tax is not imposed on myself. Thus, if not imposed, is a voluntary tax. Not to mention, Article 1, Section 9, Clause 4 protects me (a citizen of Florida and the United States) from a mandatory direct tax. I don’t want to hear about how the 16th Article of Amendment to the United States Constitution conveyed a new power of taxation, not previously known, to Congress. Just read in the Supreme Court Reporter, Volume 240, on page 1; In the case “Brushaber v. Pacific Union R.R.” the true meaning of the Sixteenth amendment may be found.
Honestly, I could not go through everything here. There are more laws that I have not mentioned, specifically, a substantial review of Subchapter C of Chapter 21 entitled “General Provisions”.
To list the sections covered in the only other chapter that might have something to do with us will have to be enough for now.
Chapter 25 – General provisions relating to Employment Taxes.
Section 3501: Collection and Payment of Tax.
Section 3502: Nondeductibility of taxes in computing taxable income.
Section 3503: Erroneous Payments.
Section 3504: Acts to be performed by agents.
Section 3505: Liability of third parties paying or providing for wages.
Section 3506: Individuals providing companion sitting placement services.
Section 3507: Advance payment of earned income credit.
Section 3508: Treatment of real estate agents and direct sellers.
Section 3509: Determination of employer’s liability for certain employment taxes.
Section 3510: Coordination of collection of domestic service employment taxes with collection of income taxes.
** I am very interested in your response, and I look forward to finding out that my oppinions may be set on a road to truth rather than some “quaint idea”.
Cordially,
Pendency
I’m just a Financial Advisor here, not a lawyer, so don’t take anything I say as if it is God’s word. I’m just trying to get you out of trouble.
To me, it breaks down this way:
-
You are “performing a service”…[somewhere in the jurisdiction of the US government] - this means you have “employment.”
-
With “employment” anything you make is “wages.”
-
Since you make wages, we’re gonna whack you for X%.
I don’t understand your logic.
I’m with ya, brother (or sister).
True, but I think the “variance” is to include cases for people that work, say, on a boat that is floating in the Pacific under the American flag. You work on that boat, you pay FICA.
Okay, that’s probably true. But this is only used as one of three possible inclusions for the definition of employment. I think that you are an employee by the first paragraph of “providing a service…”
This is where things get a little more interesting. I think it is imposed on you, because I think you are:
- employed
- earning wages from being employed
Again, I’m no tax lawyer. But if you were really serious about your argument I would sit down with a Tax Advisor to make damn sure your case is special before you decide to stop paying FICA.
Seth, I think a further explaination will help…
You see, the term “United States”, when used in a geographical sense, means something precise when used anywhere in Chapter 21.
I failed to diferentiate between Sections (A) and (B) of the term “Employment.” Take a quick look at it again. The way I understand these two clauses is such that Section (A) refers wholly to a geographical location. This seems very clear to me.
Section (B), on the other hand, contains a reference to the term United States partially with and partially without a geographical context.
“…citizen or resident of the United States”
Citizenship is not connected to a geographical meaning.
Residency, however, is connected to a geographical meaning.
This is where it gets tricky, especially when considereing the intent of the law. I must attend a meeting presently, so I will post more at a later time.
Logic involves rules, does it not?
Well, I have presented some of the rules by which a ‘logical’ solution may be obtained.
Well, in my oppinion, you are not wrong, but I feel that the variance is there so that the intent may be clearly understood. This is not some strange exception. Many, Many words are defined several times over throughout the United States Code.
I think if any of the three provisions possibly apply to myself, it is (B) due to unclarified usage of words.
Tell me Seth, on what basis have you formed this notion of “employed” or “earned wages”? Do you know that your notions are equivalent to those conveyed by United States Law?
I don’t rely on “professional advice”, especially from a tax advisor, who would go out of business if people quit filling returns.
Cordially,
Pendency
I don’t understand your logic either, Pendency, and I agree with Seth. I think, and maybe I’m missing something, that your failure to differentiate between A nd B is your failure. (A) refers to any person who is employed in the US, whether a US citizen or not. (B) refers to a US citizen irrespective of where he is working. He could be working in Timbuktu.
Yhe plain meaning is that an employee and his employer must contribute to the FICA. As Seth noted, if you don’t, not only are you violating the law, but you won’t be entitled to any Social Security or Medical benefits. You may not think those are important now, if you are younger, but there will be a time when you will. I can understand your not wanting to contribute if you are single and remain so, as you’d be much better off saving the same amount of money. However, your family (wife and minor children) are also entitled on your record. And if by chance you become disabled, you will be surely lamenting the fact that you can’t get any disability insurance benefits.
Seth,
Sorry to split this into two posts; I hope you and everyone else will forgive this inconvienence.
Under the definition of “Employment”, Section (A), I feel that the structure is clear in meaning and can be said that there is no question of what is conveyed by this definition.
Do you agree or disagree that the term “United States” as, used in section (A), is accurately described by the definition of “United States” in the same chapter?
Under the definition of “Employment”, Section (B), I feel that the Language lacks precision. For our reference:
I feel that this is going to require some guessing and a bit of constructive reasoning. I do not yet know how I shall come to a reasonable explanation, so any help will be appreciated.
First, let me start generally and work towards the specifics:
- There are only two type of lawful taxes in the United States of America. These are Direct and Indirect Taxes.
A) Direct Taxes have the requirement of apportionment amoung the several States of the Union (Just like Representatives).
B) Indirect taxes have the requirement of Uniformity throughout the States and the liability for any indirect tax must not be placed on the final consumer.
Conclusion 1) Because FICA is not apportioned among the several states, it cannot be a Direct Tax.
Conclusion 2) Because all liability for indirect taxes are laid on some person other than the final consumer, it follows that all indirect taxes are avoidable.
Of course, this just means that if I don’t wish to pay Employment Taxes, I should avoid any such tax imposed under the provisions of Subtitle C of Title 26 of the United States Code. Moving on…
If you’ll refer to an earlier post you will see that I bolded the words which are important to me. One of these words is “Income”. In all of my research, I have never found a statutory definition of “Income”. However, the courts have ruled, and our common sense tells us that:
-
Income is the measure of positive gain of a valuable.
-
If a person digs a hole for another person, and that person recieved compensation, it is obvious that there has only been an equal exchange of valuables.
Furthermore…
All Natural Citizens have Natural Rights. Among these natural rights are property – even if the right of property only extends to your own person. Non-Citizens are exercising a privelege to work here. Natural Citizens are exercising a right to live and work here. However, if a Natural Citizen exercises a privelege to live and work in a Foreign country while maintainging thier Citizenship, they too are going to be the subject of an excise tax by reason of exercising a privelege extended by our Government.
Okay, before I get too far off subject, please allow me to return to the original point.
For section (B) to apply to any person at all, they must be:
- an Employee
- … of an American Employer.
The Definition of American Employer is:
"*(h) American employer
For purposes of this chapter, the term ‘‘American employer’’ means an employer which is -*" (Remainder Excluded)
The only place “Employer” is defined is in the chapter called “Unemployment Tax” which places a limitation on the definition by stating “For the purposes of this chapter–”.
Sounds odd to me!
Anyway,
If we assume that this tax is imposed, what form(s) should we use? Well, to find out, we simply look it up in Section 602.101 of the Code of Federal Regulations relating to Title 26.
In the chart listed, for the Section 3102 of Title 26 (Which is Deduction of the Tax imposed by Section 3101 – ie. FICA) are three forms which are used for this tax. I don’t know what they are honestly, I will have to find out and get back to you.
The forms are controlled by an OMB (office of Management and Budget) number which is listed in the top right hand corner (Go look at your recent W-4 or 1040. The 1040’s number is 1545-0074.
Back to the list!
They are:
1545-0029
1545-0059
1545-0065
Find out what these forms are, and we shall have a little clearer understanding of Section 3101 (FICA).
I’ll see what I can do…
Cordially,
Pendency
All these statutes are implemented by agencies, which, of course, are authorized to promulgate regulations consistent with the legislation. So, try looking at some regulations. For example, 20 CFR 416.1102 state: “income is anything you receive in cash or in kind that you can use to meet your needs for food, clothing, and shelter.”
I’m not sure I follow you there. Common sence tells me that income is anything that ‘comes in’ and the general legal usage is much the same. If your company pays you, than that is income. If someone pays you to dig a hole that is income. If you win a car on the Price is Right, that is income. Wages is a subset of income. The first one is clearly wages and therefore income. The last is income, but not wages, and therfore not subject to wage specific taxes. the second is related to the main question here.
If the digging a whole situation is employment, which is defined by the recursive deffination.
that that basically says 'if you’re an employee working for an employer than you’re employed.
So the whole question comes down to is a hole digger-payer or waiter-customer relationship an employer-employee relationship. I couldn’t find anytyhing in the postings that adresses that issue specifically.
Your deffinition #1 seems more like a description of capital gains than income.
From Tips on Tips, A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry (which is available in on the IRS website in PDF format from this page:
We seem to be drifting further and further from the point. No matter how much you might think tax laws are vaguely worded, or definitions conflicted, you are still subject to FICA. Tax philosophy aside, even if a law is vague (which I agree, some of this stuff is as clear as a brick), it’s up to the courts, not you, to interpret. And, the current interpretation of the summation of those laws is as I have stated above. If you disagree, that’s fine. But you better have one hell of a good lawyer, lest you end up in jail. Now you can go all day into the minutia and intentions of various clauses of tax law, but it won’t make any difference to the IRS. And what the IRS (with an assist from the courts) says goes.
I vaquely recall that if you pay the employer’s portion of FICA that this becomes a deduction somewhere else on your federal tax return. (This being different than the employee’s portion which is not deductable.) Worth looking into if you are in this situation. And I can’t recall whether this is only available if you itemize. Which would be a shame since I would guess that most people who report tips as income probably take the standard deduction.
Well, if you do work/service/labor for wages/salary/pay/ money, you owe income tax on it, if your income comes from within the US, or you are a US resident. Now, you might well not owe FICA, as you might be “self-employed”, but then- you owe Self-Employment tax, where you get to pay BOTH halves of Social Security (but get to deduct expenses, 1st). Unless you are some sort of caterer, part-owner, or similar, if you do waiting, you are an employee, in general.
There is no legal way to get out of paying Income taxes or Social Security, except the well known deductions for certain expenses.
pendancy, it appears, is trying some sort of “tax protestor” arguement, such as “wages are not income”, or “we are not US taxpayers”, all of which arguements will get you into very deep trouble with the IRS, and have been disproved so many times in Tax Court, District Court, and the Supreme Court- that you can be fined some $5000 just for trying this sort of arguement in Court.
If you 'pick & choose" amoung Code sections, and quote out of context, you can show anything you want.