Noah wrote:Paul wrote:Stating in 3401 that "employee" includes employees of the US and of the states also makes it clear that the US and the states required to withhold. Historically, whether the sovereign is subject to its own law or to the law of another sovereign (even when the other sovereign's law is the "supreme law of the land") has been murky, at best.
Kick this to curb also, good luck !
IRC3121(e)
(1) State
The term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
Now why were these "states" left out of IRC 3401 ? Must be they are not subject to withholding... since they were not "added to".
With the exception of DC, Pete should live in the US territories, eh?
For income tax withholding at the source, residents of the District of Columbia are subject to withholding because without another definition of "state" within Chapter 24, the 7701 definition of state applies.
As for the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa, income earned by residents of those territories is covered by sections 931, 932, and 933. Those sections exclude certain income from gross income and from taxation under Title 26. Generally, most people in those territories are not subject to withholding for income taxes. However, since the citizens of those territories are eligible for some social security and medicare, withholding for FICA taxes is required, hence the difference between 3121 and 3401.
Pete is currently under indictment for a crime committed as a resident of one of the fifty states. The crime has already occurred. Moving to one of the territories would accomplish nothing as far as his trial is concerned. Moving to one of the territories would not relieve him of future obligations either. As a U.S. citizen, the income tax applies to his worldwide income. There is a foreign earned income exclusion, but he would then have to pay income taxes to the government of the territory. For example, Puerto Rico has its own income tax.
The only ways to avoid paying U.S. income taxes at all are: 1) earn less than the standard deduction and exemptions (a person would still be liable for social security and medicare); 2) go to the U.S. consulate in a foreign country and renounce your U.S. citizenship. Of course, if you choose the second option, do not expect to be allowed back in to the U.S.
Next question.
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