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CCH® PAYROLL — 4/24/08

Employer following IRS directive immune from suit over withholding

An employee’s lawsuit against his employer for changing the exemptions on his W-4 was dismissed. The employee had submitted an amended W-4, in which he claimed he was exempt from federal tax withholding. In an effort to fulfill the employee’s request, the employer manually entered on the form and into the payroll system that the employee was taking 99 allowances, effectively preventing any withholding from his pay. The employer then forwarded to the IRS the employee’s amended W-4, apparently containing the notation that he was taking 99 allowances.

The IRS initially accepted the employee’s claim that he was exempt from all federal tax withholding, but later sent a letter questioning his claim of exemption. The letter explained that the employee would have a limited amount of time to establish that he was exempt from federal tax withholding before his tax status would be changed to that of a single person with no allowances. A copy of this IRS “lock-in” letter was sent to the employer. The employee contends that his employer then illegally changed his “true status” to that of a single person with no allowances.

The employee asserted that the employer violated his Fifth Amendment right not to be deprived of property without due process of law by improperly modifying his tax withholding status and by withholding from his wages. The employer argues that it—a private entity—cannot be held liable for violating the Fifth Amendment because the Amendment “operates only as a restraint on the national government and on the states through the Fourteenth Amendment.” The Court agreed, saying that the employee had not stated a cause of action grounded in the Fifth Amendment against the employer, and held that the employee cannot state a claim based upon the employer’s compliance with an IRS directive to withhold taxes from his wages. (C.D. Giles v. Volvo Trucks North America, DC Pa., February 20, 2008.)

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