I facetiously believe that come tax time, everyone becomes a tax expert…or at least knows a tax expert. I receive a number of phone calls this time of the year from taxpayers who simply do not know how to pay their tax liability. In an alarming number of cases, the taxpayer and his/her spouse are regular wage earners who simply did not withhold enough. Many of them tell me that they were told by their co-worker “tax expert” that overtime is exempt from withholding.
I have no clue how this fallacy spread, but I have heard the “overtime wages are exempt” line no less than ten times in the past few months. Wages are no doubt taxable income, and taxable income is taxable income, no matter the circumstances surrounding it. In fact, claiming exempt status only hurts the taxpayer as the wage earner typically makes more than the normal wage for overtime, but cuts off the withholding from keeping pace with earnings.
I will step down from the soapbox now to discuss the main point of this blog post. A number of people have asked me questions about my last blog post on the IRS Fresh Start Initiative. The IRS recently posted a video on Youtube that explains the terms of the initiative in a new medium and I think this video does a good job of answering many of the questions I have received over the past few weeks. Enjoy.