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Employer not liable for honoring wage levy

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in Office Management,Payroll Management

An employer that honored a lock-in letter and a wage levy from the IRS isn’t liable to the employee for doing so, a federal trial court has ruled. The court dismissed the employee’s lawsuit against his employer. (Satterlee v. Commissioner, et al., No. 1:15-cv-01387, D.C., D.C., 2016)

Tax protestor loses again. An employee filed a W-4 on which he claimed an exemption from federal income tax withholding. The IRS later sent his employer a lock-in letter, which the employer honored. About a year after that, the IRS sent the employer a wage levy, seeking a whopping $215,864 in back taxes.

The employee sued the IRS and his employer for honoring the wage levy. Against the IRS, the employee made typical tax protestor arguments. Against the employer, he said that by honoring the lock-in letter and the wage levy, the employer dishonored the claim on his W-4 that he was exempt from federal income tax withholding.

The trial court dismissed the employee’s lawsuit. Court: Under tax code Section 6332(e), employers aren’t liable to their employees for honoring a wage levy. In addressing the employee’s claim that his employer dishonored his W-4 when it complied with the lock-in letter, the court said that tax code Section 3402(n), which allows employees to claim an exemption from income tax withholding, doesn’t grant employees a right to be free from all withholding, merely because their W-4s indicate an exemption from withholding.

THE TAKEAWAY: Dismissing a tax protestor’s lawsuit against an employer isn’t see-Spot-run law. The tax code absolves you from liability for honoring lock-in letters and wage levies, but your lawyers must still comb through the employee’s complaint, respond and ask a court to dismiss the case; that’s not chicken feed to your outside counsel.

Bottom line: Protesting taxes has a long and storied history in the U.S. However, you can terminate employees who bring frivolous lawsuits against the company.

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