"Tax Blocked"

[ruthes]

My client has a W-2 with "Tax Blocked" under his exemptions/allowances claimed.
I know he must have done this to himself. But I want to know what I am talking about when I try to explain it to him.
Does anyone know how this happened?

[Burke]

I think you are going to have to discuss this with his company. Or he is.

[Y2KEA]

He probably wrote "exempt" in box 7 of the W-4 because his plumber said it was OK.

[mastertaxguy]

Tax blocked?

1. W-2 Should not be showing withholding allowances; that is what W-4 is for. I think.
2. If you have a W-2, what amount of Federal and/or State Income (if any) withholding is shown?
3. Assuming it is ZERO, it is likely that the taxpayer filed a W-4 claiming 9 or more withholding allowances, or claimed they were exempt. As we know, that doesn't mean they are exempt.
4. If the W-2 contains a statement that TAX BLOCKED that might be some sort of notice to IRS that the taxpayer has filed a W-4 claiming high allowances or "exempt" status.
5. IRS Circular 15, page 23 (for 2014) has this advice to employers:

A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way it is false. An employee who submits a false Form W-4 may be subject to a $500 penalty. You may treat a Form W-4 as invalid if the employee wrote “exempt” on line 7 and also entered a number on line 5 or an amount on line 6.
When you get an invalid Form W-4, do not use it to fig-ure federal income tax withholding. Tell the employee it is invalid and ask for another one. If the employee does not give you a valid one, withhold taxes as if the employee was single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before.

6. I have heard, at some seminars, of preparers who have tax clients with such language on a W-4 but withholding in box 2 of the W-2 much the chagrin of the employee/TP.
7. As suggested earlier by others wiser than me (I am sure), it is not the preparer problem to resolve: the cards have been dealt, and the hand must be played as it were.

[ruthes]

"Tax Blocked"

The information is attached to his W-2 over on the right hand side where some employers show the Federal and State exemptions and allowances. It is not actually on the W-2 form itself. I did not make that clear.

[mastertaxguy]

The information is attached to his W-2 over on the right hand side where some employers show the Federal and State exemptions and allowances. It is not actually on the W-2 form itself. I did not make that clear.

So the W-2 has no amount for Federal income tax withholding?

[ruthes]

"Tax Blocked"

Yes there is an amount but it is minimal compared to wages. Last year his income was low so he got EIC. This year he made over 40,000. He will not be a happy camper but he may have caused the problem.

[DaveinTexas]

Y2KEA has it right

As Y2KEA stated, your client did claim "Exempt" for withholding. It doesn't mean he claimed exempt for the entire tax year, it might have been for a period that ended with the last pay period of the tax year or during some part of the tax year.

I only know this because I have knuckle-headed clients that do this all the time, usually in sales (Car sales, Mortgage Brokers, etc).

Not to say the employer may have made a mistake (doubtful). If your client qualified for EIC last year, his income tax was probably very low or $0. He probably thought, as most clients do, that you would be able to "work your magic" for the following year even if their income increased/lost a dependent/child turns 17, etc. If he owes/receives a small refund, he probably has no one to blame but himself. A valuable life lesson indeed.