How To Shrug — A Legal Tax Protest That Might Make A Difference

By now, a few regular readers have seen my post from last week, and many thousands have seen Stephen Gordon’s compilation of “Going Galt” commentary.

I say it’s time for some folks to put their money where their mouths are.

One of the links in the compilation is to a post of Bryan Pick @ QandO:

“I’d be more impressed if they fired a shot across the bow and coordinated a national day for cranking up their withholding allowances, just as high as they can. They’re planning their next party on Tax Day, right? One might think they’d be interested in ceasing to lend their earnings interest-free to the government. They might take some satisfaction in doing something that actually shows up on the government’s ledger.”

I think that’s a damn good idea. There’s only one problem with it:

While the feds don’t mind if you over-withhold your taxes, giving them an interest-free loan all year long, they tend to get a bit upset if you under-withhold. They tend to assess penalties, charge interest, and if they think it’s an egregious enough offense, jail time can be involved. But it’s relatively easy to get around the penalties. You can under-withhold and get away with it, as long as you keep it reasonable. The general rule I’ve seen quoted is that as long as you withhold 90% of your tax liability, you’re pretty safe.

Tax day is coming up. Assuming your earnings are pretty similar to the previous year, it’s pretty simple to estimate your tax liability. It’s also pretty simple to estimate your withholding. There are several free calculators online to do it for you, including one from the IRS. How handy!

But I’ll make it even easier. I consulted a tax preparer that I’ve known for years, and he’s provide a relatively simple rule of thumb that should serve you well. When it comes time to fill out your W-4, assuming you’re a salaried employee, here’s what you do:

  • Count yourself: Me
  • Count yourself again: Myself
  • Count yourself again: I
  • Count your spouse (if you have one)
  • Count each of your dependents (if you have them)

Me, Myself, and I, then one for your spouse and one for each dependent.

For me, I have me, myself, and I, which is three. I have a wife, making four. And I have one child and one on the way (who will arrive in 2009), so there’s two more, giving me a total of 6. This is 1-2 more than the standard W-4 form suggests that I claim, so I’ll under-withhold, but should be close enough to my actual tax burden to avoid penalties.

So here’s my suggestion. April 15th, go to your HR department and change your W-4 claimed exemptions. Go with the maximum exemptions that you calculate will keep you from over-withholding, but small enough to avoid penalties. Budget (save or invest) the difference, so that you can pay the necessary tax next April, and don’t dare postmark the check to them before April 14, 2010.

It’s not a big difference. But if enough people do this, it will be big enough to be noticed. The federal government is expecting to spend your money as soon as it comes in; they’re not expecting to wait until next April to get your money. In fact, if they have to wait, they’re likely to get angry. That’s more money they have to borrow today. That’s more of a functional deficit on their books. In short, if you want to get noticed, a far more effective way than getting some friends together for a group protest is to hit them where it hurts: the balance sheet.

Fellow Americans, it’s time to stop being doormats. If you really want to show the government that you’re angry, it’s far better to show them than to tell them.

Tell your family, tell your friends, tell your blog readers, tell your coworkers. April 15th is the American W-4 Party.

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  • Diffus

    Last time I checked, the rule was that, to avoid a penalty, the total of withholding, quarterly payments and any additional payments you choose to make must equal 100% of the previous year’s tax liability or 90% of the current year’s.

    Also, you can’t get around this by paying in nothing throughout the year and loading up with a payment on December 31. The IRS will assess a penalty if you haven’t made at least quarterly payments during the year.

  • David Gross

    That’s a good start, but it’s really too timid, don’t you think? The times call for something a little more bold. Why not take a page from the war tax resisters, who have been doing this sort of thing for years now and know how to navigate the risks pretty well (see for instance

    You can eliminate your income tax legally and by-the-book — not by using some weird crank “sovereign citizen,” “there is no law” sort of theory, but simply by keeping your income below the tax line and using legitimate deductions and credits.

    Here’s how one tax resister does it:

  • Brad Warbiany


    The IRS has a calculator, and I think as long as you are within the 90% of 2009’s withholding, you’ll be okay. From here:

    ““Most taxpayers will have paid enough tax to avoid this penalty if they have paid at least 90% of the tax shown on the return for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.”

    So if you set it to 90% of your expected 2009 tax burden, you should be okay.

  • aNON-E-MUS

    Ha. OK, anyway…. I actually underwithheld one year by more than the 90% taxable rate. It was based on uncertainty related to changing jobs. When I received all my forms (sometime in February I received the last one) I wrote the IRS a conciliatory letter along with a check that brought me up to the 90% level. Then I mailed in the final 10% on April 15. No penalty.

    Obviously, there’s a little more risk involved with this if you’re doing it intentionally. Good luck. :)

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  • Robert Bell

    I’ve claimed the maximum number of dependants for years…the idea of lending Uncle Sam money, interest free, never really appealed to me.

  • Dave C

    Rangel Rule..

    write that on your return and you are covered against any fines levied against you..

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  • Gaylen Robison

    When the Government causes inflation due to deficit spending (printing paper currency that is not backed by something of intrinsic value), our money becomes worth less. That represents a loss of profit value. That is clearly a legitimate reason to deduct that loss on a tax return. You can find the true Inflation Rate, month by month, online, to determine the monthly rate of our losses. Looks like we will have some large deductions now.
    Is there any question now as to why Gold and Silver was determined by the Founders of our Constitution to be the best way to back our money and preserve our property rights and other natural liberties?