If you are a W-2 employee, your employer withholds taxes from your pay and is supposed to turn that money over to the IRS as a federal tax deposit.
If your employer has tax problems and does not turn over the tax withheld from your paycheck to the IRS, you still receive full credit for that money on your personal tax return even if that money was never paid to the IRS.
However, if you are a foreign person that may no longer be the case. The IRS recently announced its intention to issue regulations for claims for refund made by foreign persons if their employer has unpaid employment taxes due to the IRS. A foreign person will still get credit on his or her tax return up to the amount of their U.S. tax liability. However, any refund due to the foreign person will be disallowed if their employer owes employment taxes to the IRS.
The IRS is taking this position because it may not be able to recover the amount the employer failed to pay to the IRS.
We feel that this is patently unfair because you are punishing the employee for something that the employer did. What do you think?
Are you owed taxes from the IRS and they have been held due to your employer’s tax issues?