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Form W-2
What's this form all about, anyway?
Arjun Sodhani
March 16, 2025
The law is dead. As judges we are but coroners, sifting through its remains, uncovering only what the evidence allows. But if we proclaim, ‘The law lives! Hear now its voice!’ we become necromancers of deceit, raising corpses, dressing them in foreign robes, and forcing hollow mouths to speak the words we crave.
Today we’re going to be looking at Form W-2.
Have you ever looked into this form?
Do you even understand what it’s really saying?
Are you an “employee”? Are you paid “wages”?
Why are your “wages” reported three times?
Why are there three different kinds of taxes withheld?
Why are these forms even generated?
If you received a Form W-2 for your hard work last year, or are responsible for your company’s payroll, this post will de-mystify Form W-2 so you can use and/or issue them correctly, in accordance with the Internal Revenue Code.
Table of Contents
In helping an organization set up payroll, the very first thing I noticed is that all of the software I’ve looked at walks you right into doing it the wrong way. But that’s ok, because everyone does it and nobody wants the IRS to come after them for not paying their fair share to support the building of roads, arbitrary genocide, and Transgender Monkey Studies. After we have a look at Form W-2 and what the boxes and numbers therein represent, you’ll see the absurdity in this.
The Form W-2
If you’re an “employee”, you receive several copies of this form early in the year, in good time to complete your taxes.
Live example. Take a good look.
Copy B is to be filed with Employee’s FEDERAL Tax Return.
Copy 2 is to be filed with Employee’s State, City, or Local Income Tax Return.
Copy C for EMPLOYEE’s RECORDS.
The first thing I’d like to do is understand what the “wages” in Boxes 1, 3, 5 mean, why they’re listed three times, and the difference between them. Then, I want to know why and how the taxes in Boxes 2, 4, 6 are taken out from my hard earned paycheck.
A good place to start is always the instructions that come with the form.
Unfortunately, the instructions on the W-2 only tell us what to do with the numbers in Boxes 1, 2, 5, 6. It says nothing of the provenance.
So, I’m happy to say that we’ll have to do our own research. So, let’s get started. Why does Form W-2 even exist?
The Prescribing Statutes
The Form W-2 is a type of thing known as an Information Return. Forms 1099, 1096, W-3 are also Information Returns.
The place to find information on Information Returns is:
Within Part III, we find Subpart C - Information Regarding Wages Paid Employees.
Within Subpart C, we find Section 6501 - Receipts for employees, which should have the information we seek:
26 U.S. Code § 6051 - Receipts for employees
(a) Requirement
Every person required to deduct and withhold from an employee a tax under section 3101 or 3402, or who would have been required to deduct and withhold a tax under section 3402 (determined without regard to subsection (n)) if the employee had claimed no more than one withholding exemption, or every employer engaged in a trade or business who pays remuneration for services performed by an employee, including the cash value of such remuneration paid in any medium other than cash, shall furnish to each such employee in respect of the remuneration paid by such person to such employee during the calendar year, on or before January 31 of the succeeding year, or, if his employment is terminated before the close of such calendar year, within 30 days after the date of receipt of a written request from the employee if such 30-day period ends before January 31, a written statement showing the following:
(1) the name of such person,
(2) the name of the employee (and an identifying number for the employee if wages as defined in section 3121(a) have been paid),
(3) the total amount of wages as defined in section 3401(a),
(4) the total amount deducted and withheld as tax under section 3402,
(5) the total amount of wages as defined in section 3121(a),
(6) the total amount deducted and withheld as tax under section 3101,
[(7) Repealed. Pub. L. 111–226, title II, § 219(a)(3), Aug. 10, 2010, 124 Stat. 2403]
(8) the total amount of elective deferrals (within the meaning of section 402(g)(3)) and compensation deferred under section 457, including the amount of designated Roth contributions (as defined in section 402A),
(9) the total amount incurred for dependent care assistance with respect to such employee under a dependent care assistance program described in section 129(d),
(10-17) … [etc]
Well, this sounds a lot like what’s reported on the W-2, doesn’t it?
Looks like we’re in the right place.
If this is your first time looking at stuff congress writes, ask yourself, why doesn’t it just say, as we interpret it in our culture, “all employers of any kind the 50 United States or Federal territories or possessions shall furnish to each employee a written statement showing: …
(1) the employer’s name
(2) the employee’s social security number, or other identifying number
(3) the total amount of money they received as employees during the calendar year
(4) …etc
What is the purpose of such convoluted language?
By the way, have you ever heard of a “section 3121(a) wage”?
We’ll look at that in just a second. First, let us have a look in the Code of Federal Regulations, which are the implementing regulations supporting the US Code statutes.
CFR - Code of Federal Regulations
Title 26 -Internal Revenue
Chapter I - Internal Revenue Service, Department of the Treasury
Subchapter C - Employment taxes and collection of income at source
Three sections in Subpart G are issued under 26 U.S. Code § 6051, the section we just read above.
Section 31.6051-1 also issued under 26 U.S.C. 6051.
Section 31.6051-2 also issued under 26 U.S.C. 6051.
Section 31.6051-3 also issued under 26 U.S.C. 6051.
Sections 31.6051-1, -2, and -3 tells us that the information in question should be furnished on Form W-2. Certain words are hyperlinked to their definitions. Check them out, if you dare. Especially interesting is the definition for “employee”. Are you one?
CFR § 31.6051-1 Statements for employees.
(a) Requirement if wages are subject to withholding of income tax
(1) General rule.
(i) Every employer, as defined in section 3401(d), required to deduct and withhold from an employee a tax under section 3402, or who would have been required to deduct and withhold a tax under section 3402 (determined without regard to section 3402(n)) if the employee had claimed no more than one withholding exemption, shall furnish to each such employee, in respect of the remuneration paid by such employer to such employee during the calendar year, the tax return copy and the employee's copy of a statement on Form W-2. For example, if the wage bracket method of withholding provided in section 3402(c)(1) is used, a statement on Form W-2 must be furnished to each employee whose wages during any payroll period are equal to or in excess of the smallest wage from which tax must be withheld in the case of an employee claiming one exemption. If the percentage method is used, a statement on Form W-2 must be furnished to each employee whose wages during any payroll period, reduced by the amount of one withholding exemption, are equal to or in excess of the smallest amount of wages from which tax must be withheld. See section 3402 (a) and (b) and the regulations thereunder. See paragraph (d) of this section for provisions relating to the time for furnishing the statement required by this subparagraph. See paragraph (f) of this section for an exception for employers filing composite returns from the requirement that statements for employees be on Form W-2. For the requirements relating to Form W-2 with respect to qualified State individual income taxes, see paragraphs (d)(3)(ii) of § 301.6361-1 of this chapter (regulations on Procedure and Administration). Each statement on Form W-2 shall show the following:
(A) The name, address, and identification number of the employer.
(B) The name, address, and social security number of the employee, which may be truncated to appear in the form of an IRS truncated taxpayer identification number (TTIN) on copies of Forms W-2 that are furnished to the employee (for provisions relating to the use of TTINs, see § 301.6109-4 of this chapter (Procedure and Administration Regulations)), if wages as defined in section 3121(a) have been paid or if the Form W-2 is required to be furnished to the employee,
(C) The total amount of wages as defined in section 3401(a),
…
Check out Section 31.6051-2 and Section 31.6051-3 in another tab.
Ok, let’s go forth and look at the requirement for employees to furnish receipts.
Wages paid to an Employee
First of all, we need to determine if we—or the people that hired us—are such persons to which this requirement applies.
26 U.S. Code § 6051 - Receipts for employees [abridged]
(a) Requirement
Every person required to deduct and withhold from an employee a tax under section 3101 or 3402, … or every employer engaged in a trade or business who pays remuneration for services performed by an employee, … shall furnish to each such employee [a Form W-2].
To do this, we ask three questions,
Am I required to deduct and withhold from an employee a tax under section 3101?
Am I required to deduct and withhold from an employee a tax under section 3402?
Am I engaged in a trade or business paying remuneration for services performed by an employee?
and tackle them one by one.
Table of Contents
Section 3101 Tax?
Am I required to deduct and withhold from an employee a tax under section 3101?
Let’s start by looking at section 3101, found in:
U.S. Code Title 26 - Internal Revenue Code
Subtitle C - Employment Taxes
CHAPTER 21 - Federal Insurance Contributions Act
Subchapter A - Tax on Employees
§ 3101 - Rate of Tax
26 U.S. Code § 3101 - Rate of tax
(a) Old-age, survivors, and disability insurance
In addition to other taxes, there is hereby imposed on the income of every individual a tax equal to 6.2 percent of the wages (as defined in section 3121(a)) received by the individual with respect to employment (as defined in section 3121(b)).
(b) Hospital insurance
(1) In general
In addition to the tax imposed by the preceding subsection, there is hereby imposed on the income of every individual a tax equal to 1.45 percent of the wages (as defined in section 3121(a)) received by him with respect to employment (as defined in section 3121(b)).
(2) Additional Tax
[Provisions for additional tax in various cases]
Ah, yes. The beloved Social security and Medicare taxes that everyone is afraid will run out and apparently has been being paid out to people who are older than the United States itself.
Two terms to define here: “wages” and “employment”. You are about to hear about a “section 3121(a) wage”.
26 U.S. Code § 3121 - Definitions
(a) Wages
For purposes of this chapter, the term “wages” means all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include—
(1-23) [A list of 23 exclusions]
(b) Employment
For purposes of this chapter, the term “employment” means any service, of whatever nature, performed (A) by an employee for the person employing him, irrespective of the citizenship or residence of either, (i) within the United States, or (ii) on or in connection with an American vessel or American aircraft under a contract of service which is entered into within the United States or during the performance of which and while the employee is employed on the vessel or aircraft it touches at a port in the United States, if the employee is employed on and in connection with such vessel or aircraft when outside the United States, or (B) outside the United States by a citizen or resident of the United States as an employee for an American employer (as defined in subsection (h)), or (C) if it is service, regardless of where or by whom performed, which is designated as employment or recognized as equivalent to employment under an agreement entered into under section 233 of the Social Security Act; except that such term shall not include—
(1-22) [A list of 22 exclusions]
More terms to define here: “employee”, “United States”, and “American Employer”. All defined in the same section.
Note that “employment is nested in the definition of “wages”. So, to get a full definition of the term “wages”, we have to use the definition of “employment”. To get a full definitino of “employment”, we have to use the definition of several other terms included in its definition. (This is legal construction)
26 U.S. Code § 3121(d) Employee
For purposes of this chapter, the term “employee” means—
(1) any officer of a corporation; or
(2) any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee; or
(3) any individual (other than an individual who is an employee under paragraph (1) or (2)) who performs services for remuneration for any person—
(A) as an agent-driver or commission-driver engaged in distributing meat products, vegetable products, fruit products, bakery products, beverages (other than milk), or laundry or dry-cleaning services, for his principal;
(B) as a full-time life insurance salesman;
(C) as a home worker performing work, according to specifications furnished by the person for whom the services are performed, on materials or goods furnished by such person which are required to be returned to such person or a person designated by him; or
(D) as a traveling or city salesman, other than as an agent-driver or commission-driver, engaged upon a full-time basis in the solicitation on behalf of, and the transmission to, his principal (except for side-line sales activities on behalf of some other person) of orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments for merchandise for resale or supplies for use in their business operations;
if the contract of service contemplates that substantially all of such services are to be performed personally by such individual; except that an individual shall not be included in the term “employee” under the provisions of this paragraph if such individual has a substantial investment in facilities used in connection with the performance of such services (other than in facilities for transportation), or if the services are in the nature of a single transaction not part of a continuing relationship with the person for whom the services are performed; or
(4) any individual who performs services that are included under an agreement entered into pursuant to section 218 or 218A of the Social Security Act.
26 U.S. Code § 3121(e) State, United States, and citizen
For purposes of this chapter—
(1) State
The term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
(2) United States
The term “United States” when used in a geographical sense includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
An individual who is a citizen of the Commonwealth of Puerto Rico (but not otherwise a citizen of the United States) shall be considered, for purposes of this section, as a citizen of the United States.
Interesting Note: “State“ = “District of Columbia” + “United States”
Typically, when used in a geographical sense, “United States” also includes the 50 states. But that is not what the code says here. Remember: we are not having a casual conversation.
26 U.S. Code § 3121(h) American Employer
For purposes of this chapter, the term “American employer” means an employer which is—
(1) the United States or any instrumentality thereof,
(2) an individual who is a resident of the United States,
(3) a partnership, if two-thirds or more of the partners are residents of the United States,
(4) a trust, if all of the trustees are residents of the United States, or
(5) a corporation organized under the laws of the United States or of any State.
To attempt to drive a point home, let’s define “American employer” again, using the definitions for “United States” and “State” for this chapter. Now, it’s possible and probable that some of the above do not use “United States” in the geographical sense. In those cases, we leave the United States to mean the United States public trust corporation created by the Constitution, a/k/a the United States Federal Corporation. We just have to use context clues.
26 U.S. Code § 3121(h) American Employer
For purposes of this chapter, the term “American employer” means an employer which is—
(1) the United States [Federal Corporation] or any instrumentality thereof,
(2) an individual who is a resident of the [Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa],
(3) a partnership, if two-thirds or more of the partners are residents of the [Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa],
(4) a trust, if all of the trustees are residents of the [Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa], or
(5) a corporation organized under the laws of the United States [Federal Corporation] or of any [District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa].
Wphewgh. Does that make sense? (It’s ok to say no)
Anyway. Let’s go back to the question we’re trying to answer here: Am I required to deduct and withhold from an employee a tax under section 3101?
Let’s apply cascading definitions:
26 U.S. Code § 3101 - Rate of tax
(a)Old-age, survivors, and disability insurance
In addition to other taxes, there is hereby imposed on the income of every individual a tax equal to 6.2 percent of the wages_
- a/k/a all remuneration for employment_
- - a/k/a any service, of whatever nature, performed (A) by an employee_
- - - a/k/a (1) any officer of a corporation; or (2) any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee; or (3) any individual (other than an individual who is an employee under paragraph (1) or (2)) who performs services for remuneration for any person; (A) as an agent-driver or commission-driver engaged in distributing meat products, vegetable products, …. or; (B) as a full-time life insurance salesman; or (C) as a home worker performing work, or (D) as a traveling or city salesman; or (4) any individual who performs services that are included under an agreement entered into pursuant to section 218 or 218A of the Social Security Act.
- - for the person employing him, irrespective of the citizenship or residence of either, (i) within the United States_
- - - a/k/a the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
- - or (B) outside the United States by a citizen or resident of the United States as an employee for an American employer_
- - - a/k/a (1) the United States or any instrumentality thereof, (2) an individual who is a resident of the United States, (3) a partnership, if two-thirds or more of the partners are residents of the United States, (4) a trust, if all of the trustees are residents of the United States, or (5) a corporation organized under the laws of the United States or of any State_
- - - - a/k/a the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
received by the individual with respect to employment [as defined above.]
(b) Hospital insurance
(1) In general
In addition to the tax imposed by the preceding subsection, there is hereby imposed on the income of every individual a tax equal to 1.45 percent of the [same] wages [see part (a) above] received by him with respect to employment [as defined above].
So, if you are Terry’s Plumbing Company serving the greater Phoenix, Arizona area—outside/without/foreign to the United States—and you’ve got a crew of five plumbers working for you, you are not required to deduct and withhold from your employees a tax under section 3101 because you’re not an “American employer” as defined in relevant law. Neither are Terry’s employees Section 3121(d) “employees”.
Your friendly USPS Mail Carrier however, is an employee. Because the United States Postal Service, while most offices are located outside the United States, is an instrumentality of the United States, and therefore a section 3121(h)(1) “American Employer”.
While section 3121 makes it pretty clear that the status of the employee is essentially irrelevant, it may yet be useful to define “resident of the United States” and “citizen of the United States”. These terms are not defined in this section, but in 26 U.S. Code § 7701(30), in a somewhat backwards way:
26 U.S. Code § 7701(30) United States person
The term “United States person” means—
(A) a citizen or resident of the United States,
(B) a domestic partnership,
(C) a domestic corporation,
(D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and
(E) any trust if—
(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and
(ii) one or more United States persons have the authority to control all substantial decisions of the trust.
The same terms found in this definition are the ones used to define American employer in 26 U.S. Code § 3121(h).
Basically, a roundabout way of saying that an American Employer is the United States itself, or a United States Person.
26 U.S. Code § 7701(a)(4)
(4) Domestic
The term “domestic” when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations.
(5) Foreign
The term “foreign” when applied to a corporation or partnership means a corporation or partnership which is not domestic.
(31) Foreign estate or trust
(A) Foreign estate
The term “foreign estate” means an estate the income of which, from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States, is not includible in gross income under subtitle A.
(B) Foreign trust
The term “foreign trust” means any trust other than a trust described in subparagraph (E) of paragraph (30).
Section 7701 also has custom definitions for “United States” and “State”, which we’ll look at in just a bit.
The purpose of the convoluted language, while it does confuse the one who reads the code in a colloquial sense, is to very precisely draw the line where it needs to be drawn to distinguish which incomes and activities are taxable. Well, that’s just my opinion, man.
In fact, when the 16th Amendment was being considered, there was a massive media propaganda campaign funded by the robber baron types aimed at confusing people into thinking that the “incomes” mentioned in the amendment included their non-federal incomes as well. Why? Because the robber baron types, whose activities would be subject to the income tax, wanted to manufacture public opinion to be against the income tax in order to continue benefitting from the public purse.
At the turn of the 20th century, as the leaders and owners of the Republican Party fell into greed, the Democrats re-assumed the role of being the party of the working class.
To combat the misinformation, the policy of the Bureau of Internal Revenue, at that time, was to submit a federal tax return, and if your income was actually taxable, the BIR would send you a bill. If your income was not, you’d get no response.
Today, it’s exactly the opposite.
It’s worth noting here that the section dealing with the rate of tax on employers for FICA— the other 6.2%— is substantially the same as the section dealing with the rate of tax on employees. Interestingly, in this case, the tax is called an “Excise tax.”
26 U.S. Code § 3111 - Rate of tax
(a)Old-age, survivors, and disability insurance
In addition to other taxes, there is hereby imposed on every employer an excise tax, with respect to having individuals in his employ, equal to 6.2 percent of the wages (as defined in section 3121(a)) paid by the employer with respect to employment (as defined in section 3121(b)).
Section 3402 Tax?
The next question is: am I required to deduct and withhold from an employee a tax under section 3402? Where do you think we’re gonna start?
U.S. Code Title 26 - Internal Revenue Code
Subtitle C - Employment Taxes
CHAPTER 24 - Collection of Income Tax at Source on Wages
§ 3402 - Income Tax Collected at Source
26 U.S. Code § 3402 - Income tax collected at source
(a) Requirement of withholding
(1) In general
Except as otherwise provided in this section, every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary. Any tables or procedures prescribed under this paragraph shall—
(A) apply with respect to the amount of wages paid during such periods as the Secretary may prescribe, and
(B) be in such form, and provide for such amounts to be deducted and withheld, as the Secretary determines to be most appropriate to carry out the purposes of this chapter and to reflect the provisions of chapter 1 applicable to such periods.
(2) Amount of wages
For purposes of applying tables or procedures prescribed under paragraph (1), the term “the amount of wages” means the amount by which the wages exceed the taxpayer’s withholding allowance, prorated to the payroll period.
May seem hopeless because no definitions are provided within the paragraph text, but if we open our eyes and look at the bigger picture, the definitions are staring us right in the face from the section just before.
26 U.S. Code § 3401 - Definitions
(a) Wages
For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include remuneration paid—
(1-23) [A list of 23 exclusions]
(c) Employee
For purposes of this chapter, the term “employee” includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term “employee” also includes an officer of a corporation.
(d) Employer
For purposes of this chapter, the term “employer” means the person for whom an individual performs or performed any service, of whatever nature, as the employee of such person, except that—
(1) if the person for whom the individual performs or performed the services does not have control of the payment of the wages for such services, the term “employer” (except for purposes of subsection (a)) means the person having control of the payment of such wages, and
(2) in the case of a person paying wages on behalf of a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in trade or business within the United States, the term “employer” (except for purposes of subsection (a)) means such person. [ChatGPT helped me decipher this part]
It’s almost as if they just copied the definition of “wages” from Chapter 21. This part is much easier to crack because there are fewer cascading definitions.
The question essentially boils down to: “Are you paying employees?
But what if this chapter has its own definition for “United States” and “State”? We don’t actually find any custom definition for them in this section. Nor in Chapter 24, for that matter. That being the case, we can go look in the section of the code that defines terms at the title level.
26 U.S. Code § 7701(a)
(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof1 —
(9) United States
The term “United States” when used in a geographical sense includes only the States and the District of Columbia.
(10) State
The term “State” shall be construed to include the District of Columbia, where such construction is necessary to carry out provisions of this title.
In this case, the tax prescribed by section 3401 has a narrower scope: The Districts of Colombia and the District of Columbia.
So, if you are Luigi’s One-Man Lightbulb Changing Inc. serving the lesser Phoenix, Arizona area with one apprentice who you’re grooming to take over the business when you conk out, while your company technically does meet this section’s definition of “employer”, your apprentice is not an employee.
Your congressman is an employee.
(Imagine a Maury’s style game show here. An IRS agent is accusing Luigi of improperly stopping withholding income tax as per §3401. He presents the W-4 his employee signed. Luigi is sitting there with his apprentice, confident, yet tensely awaiting the results of the legality check, performed by an expert panel of decipherers who look at what is, rather than what the paper alleges what isn’t is, judging according to the code itself. Maury reads the card: “You are NOT an employee!” The crowd goes wild. Luigi and his apprentice jump out of their chairs, raise their hands in victory, and celebratorily jump and dance around the stage, the IRS agent folds his head into his palms in embarrassment.)
Engaged in a Trade or Business?
The final question. Am I engaged in a trade or business paying remuneration for services performed by an employee?
We’ve seen this term “trade or business” a bunch before. While Mario, owner of Mushroom Trading & Repair Co. based in Minnesota with 15 traders and 12 repairers, might think that he is engaged in such activity, the definition in 26 U.S. Code § 7701 may shock him:
26 U.S. Code § 7701 - Definitions
(a)(26) Trade or business
The term “trade or business” includes the performance of the functions of a public office.
This may just be the easiest of the three questions to answer. We really don’t even need to define “employee” because obviously, mushroom trading and repairing does not include the performance of the functions of a public office.
But Mario, in reviewing section 7701, finds something that gives him pause:
(c) Includes and including
The terms “includes” and “including” when used in a definition contained in this title shall not be deemed to exclude other things otherwise within the meaning of the term defined.
“Hey, wait,” he says. “This part says that ‘trade or business’, because it uses ‘includes’ before the definition, means that section 7701’s ‘trade or business’ could include my trade or business, because it’s a business and it does make trades!”
And that’s a good point.
I’d ask Mario what I’ve asked you before: if your employees and your business are meant to be included in the tax base, why doesn’t congress just write it like this:
Trade or business
The term “trade or business” means all trades and all businesses in the United States, and the performance of the functions of a public office.
United States
The term “United States” means the 50 States, the District of Columbia, the Commonwealth of Puerto Rico, any possession of the United States, the Commonwealth of the Northern Mariana Islands, and the Trust Territory of the Pacific Islands.
By the way— I copied that last definition straight from the subchapter of the same title dealing with Tax on Petroleum. Section 4612(a)(4).
Disregarding the clown show you see on TV, Congress clearly has the mental capability to compose clear code that anyone can understand. If they just copied the definition from § 4612(a)(4) to § 7701(a)(9) and § 3121(e), it would clear up three and a half tons of confusion, I wouldn’t be writing this, you wouldn’t be reading this, and there wouldn’t be any people selling tactics, tricks, and procedures to “get out of paying taxes” because it would all be totally obvious. Every Terry, Luigi, Mario, all of their employees, and everyone else who’s ever had to file a tax return would get it. Instantly.
Ask yourself, WHY IS IT DIFFERENT?
In order to keep income tax law constitutional, it has to be this way. Our Income Tax is a Privilege Tax. Direct taxes on your labor are forbidden. But your representatives in government will not complain if you choose, whether out of ignorance or grace, to gift your money to the Treasury. It is, in a sense, their insurance policy.
Compare:
26 U.S. Code § 4612(a)
For purposes of this subchapter—
(4)(A) In general
The term “United States” means the 50 States, the District of Columbia, the Commonwealth of Puerto Rico, any possession of the United States, the Commonwealth of the Northern Mariana Islands, and the Trust Territory of the Pacific Islands.
26 U.S. Code § 7701(a)
When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof—
(9) United States
The term “United States” when used in a geographical sense includes only the States and the District of Columbia.
(10) State
The term “State” shall be construed to include the District of Columbia, where such construction is necessary to carry out provisions of this title.
8 U.S. Code § 1101(a)
(a) As used in this chapter—
(38) The term “United States”, except as otherwise specifically herein provided, when used in a geographical sense, means the continental United States, Alaska, Hawaii, Puerto Rico, Guam, the Virgin Islands of the United States, and the Commonwealth of the Northern Mariana Islands.
For the definition in 26 U.S. Code § 7701(a), why not insert “50” between “only the” and “States”? Why not insert “Continental”, and add “Alaska” and “Hawaii”, like was done in the Title 8 definition?
It must not include the 50 States. Applying this common sense to ease Mario’s concern regarding the word “including” still may not satisfy him. But, luckily, we have something known as the Supreme Court and they have, over the years, checked this type of thing out. They’ve checked it out a couple of times. There is even a case that deals specifically with the difference between “means” and “includes”:
The terms "means" and "includes" are not necessarily synonymous… That the draftsman used these words in a different sense seems clear. The natural distinction would be that, where "means" is employed, the term and its definition are to be interchangeable equivalents, and that the verb "includes" imports a general class, some of whose particular instances are those specified in the definition.
Interesting. So in defining “United States”, § 4612, uses “means”. That’s clear. But, § 7701 uses “includes”, implying an import of the general class of “the performance of the functions of a public office.”
So we first ask ourselves, whether Mario’s Mushroom Trading & Repair Co. falls within the general class of “the performance of the functions of a public office.”
It might be so said, that because Mario’s corporation is regulated by certain federal regulations regarding mushroom trading and repairing in other Titles of U.S. Code, and even is subject to tariffs when importing Norwegian mushrooms, that his business is, to some extent, governed by Congress, by their performing the functions of a public office.
Therefore, since his company is regulated and otherwise taxed by persons in a trade or business, his business is included.
Right?
Although the definition may not be a model of precision, in part due to its circular aspect, it defines the minimum content of the term "branch"; by use of the word "include" the definition suggests a calculated indefiniteness with respect to the outer limits of the term.
Well, if so, that would be quite the deal for our servant government, and any parasite class that feeds off of them. The servant government gaining complete control over Mario’s company and workers, benefiting off of their innovation, labor, and efforts all because they exist. This arrangement paints a picture of a fascist type of government, where Mario gets to do all the hard work, front all the capital, take all the risk, but has no say whatsoever how his business is run. If so, he would be entirely subject to the whims of his own representatives.
That is not the style of government our founders set up for us.
This is looking very bad for Mario, and very good for the democratic socialist movement. Not to worry, once they gain complete power, they will re-write all dictionaries and codes to a single language so that nobody can understand what the hell anything or anyone is saying. No more confusion such as that discussed in the next case:
Plaintiff, accordingly, claims that Mrs. Ham, as the receiver of a one-third portion of Mr. Ham's estate, was not a “beneficiary” within the meaning of § 662. This contention, however, fails. For definition, 26 U.S.C. § 643(c) provides that “the term ‘beneficiary’ includes heir, legatee, devisee.” The word “elector” (of a spouse's share) does not appear, but “includes” is not limiting. Rather, “[t]he terms ‘includes' and ‘including’ ․ shall not be deemed to exclude other things otherwise within the meaning of the term defined.” 26 U.S.C. § 7701(c). In light of this we apply the principle that a list of terms should be construed to include by implication those additional terms of like kind and class as the expressly included terms.
And perhaps, the very fact that the term defined is “trade or business” means that all trades and businesses are included to begin with, and the performance of the functions of a public office are added on in addition.
There might be force in this suggestion if the statute had left the meaning of its terms to the test of popular understanding. Instead, it has attempted to secure precision and certainty by rejecting a test so fluid and indeterminate and supplying its own glossary… In such circumstances, definition by the average man, or even by the ordinary dictionary with its studied enumeration of subtle shades of meaning, is not a substitute for the definition set before us by the lawmakers with instructions to apply it to the exclusion of all others. There would be little use in such a glossary if we were free in despite of it to choose a meaning for ourselves.
Does Congress supply its own glossary in 26 USC? Yes.
Do they instruct us to apply it to the exclusion of others? Yes.
Can we substitute our understanding of the terms they define? No.
What if a brilliant, high-IQ Harvard Educated Professional Expert says it’s ok? No.
Regardless, even were we to grant the Attorney General's views "substantial weight," we still have to reject his interpretation, for it conflicts with the statutory language discussed supra, at 940. The Attorney General, echoed by the dissents, tries to overcome that language by relying on other language in the statute; in particular, the words "partial birth abortion," a term ordinarily associated with the D&X procedure, and the words "partially delivers vaginally a living unborn child." Neb. Rev. Stat. Ann. § 28326(9) (Supp. 1999). But these words cannot help the Attorney General. They are subject to the statute's further explicit statutory definition, specifying that both terms include "delivering into the vagina a living unborn child, or a substantial portion thereof." Ibid.
When a statute includes an explicit definition, we must follow that definition, even if it varies from that term's ordinary meaning….
Colautti v. Franklin, 439 U. S., at 392-393, n. 10 ("As a rule, 'a definition which declares what a term "means" ... excludes any meaning that is not stated' ")
Who knew that an abortion case would help us understand tax law? A case affirming the federal government’s ability to regulate and classify foreign films puts it bluntly:
It is axiomatic that the statutory definition of the term excludes unstated meanings of that term. As judges, it is our duty to construe legislation as it is written, not as it might be read by a layman, or as it might be understood by someone who has not even read it.
As People, we have the same duty. Congress ought to make it very clear what they mean, as Justice Brown opined in 1891:
We think the intention of Congress that these goods should be classified as "gilling twine" is plain, but were the question one of doubt, we should still feel obliged to resolve that doubt in favor of the importer, since the intention of Congress to impose a higher duty should be expressed in clear and unambiguous language.
United States v. Isham, 17 Wall. 496; Hartranft v. Wiegmann, 121 U. S. 609; Gurr v. Scudds, 11 Exch. 190.
There is another thing to consider here. The only reason Mario’s business is regulated and otherwise taxed by the federal government is because such government exists. If the federal government did not exist—or simply never passed any laws regarding mushroom trading or repairing— could Mario still start and run his business?
Mario does not owe his existence to the federal government. Neither he nor his business nor his workers are creations of the United States. Rather, the opposite is true. The government gets support from Mario, his work, his business, and his workers.
The very basic intention of the principle of a constitutionally-defined republican government is that the government cannot become a behemoth consuming all it lays paperwork on. Laws are in place for very particular reasons. And while our everyday language and understanding may change, the intent and meaning of the law does not.
In the interpretation of statutes levying taxes, it is the established rule not to extend their provisions by implication beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt, they are construed most strongly against the government and in favor of the citizen.
United States v. Wigglesworth, 2 Story 369, Fed.Cas. No. 16,690; American Net & Twine Co. v. Worthington, 141 U. S. 468, 141 U. S. 474; Benziger v. United States, 192 U. S. 38, 192 U. S. 55.
The law is dead. In looking at the law, we must act as coroners, concluding only what we can certainly prove from the body. If we say “the law is alive, and now says this and that!" we become puppeteers, controlling effect for our own cause.
[ Read more about this “includes” issue here. ]
So now, let us review: In order to determine whether we are such person required to furnish to our workers a Form W-2 with certain information, we had to answer three questions…
Am I required to deduct and withhold from an employee a tax under section 3101?
Am I required to deduct and withhold from an employee a tax under section 3402?
Am I engaged in a trade or business paying remuneration for services performed by an employee?
… which we derived from this section of the code regarding Information Returns:
26 U.S. Code § 6051 - Receipts for employees [abridged]
(a) Requirement
Every person required to deduct and withhold from an employee a tax under section 3101 or 3402, … or every employer engaged in a trade or business who pays remuneration for services performed by an employee, … shall furnish to each such employee [a Form W-2] showing the following:
(1) the name of such person,
(2) the name of the employee (and an identifying number for the employee if wages as defined in section 3121(a) have been paid),
(3) the total amount of wages as defined in section 3401(a),
(4) the total amount deducted and withheld as tax under section 3402,
(5) the total amount of wages as defined in section 3121(a),
(6) the total amount deducted and withheld as tax under section 3101,
If the answer to all of the three questions is No, then the requirement does not apply.
Most businesses and organizations in America would answer No to all three questions. Yet they withhold trillions of dollars from you and your fellow man under the name of paying your fair share of income taxes. Why?
Unlawful Activities?
The employer who furnished this W-2 to me did so erroneously. They put non-”wages” into boxes specifically meant for “wages”, withheld taxes not required by law, and lied to the IRS.
“Employers shall furnish to each employee a written report of money diverted from them due to ignorance”
According to the Internal Revenue Code, my W-2 should have not even been created.
If it did, it should look something like this:
Box | Description | As per | Amount |
|---|---|---|---|
1 | Wages, tips, other compensation | 0. | |
2 | Federal Income tax withheld | 0. | |
3 | Social security wages | 0. | |
4 | Social security tax withheld | 0. | |
5 | Medicare wages and tips | 0. | |
6 | Medicare tax withheld | 0. |
So what gives? How did it become culturally acceptable for your [non-IRC] employer to siphon such significant portions of your earnings from you?
Why aren’t your favorite anti-Income Tax congresspeople all over this?
Why isn’t this the biggest news of all time?
Eh, I know the answer. And you do too. No point trying to kill a dead horse.
Scared to death, scared to look, they shook
This entire scheme is completely legal. Sure, it’s based in fraud, deceit, misapplication law, confusing definitions, but the most important part of it is ignorance.
The ignorant worker, not knowing “wages” from wages, fills out a Form 1040 declaring that the information provided on the W-2 is correct, and attests to it under penalty of perjury. The IRS sees it and says, "You owe this tax? Well, if you say so.” The treasury is happy to accept your donation, your HR department is off the hook for impersonating a government agency (which, by the way, is a federal crime), and you get to share in the bittersweet feeling of being a citizen of the United States.
“I’m happy to have paid my fair share to build roads and teach Ugandans about female penises. What’s that? The president is warring?”
Nobody knows any better! Except you. You now do.
So, the question now is, how do we fix it?
Well, you have to make up your mind whether this is something you want to pursue.
Continue on as you have been, filing and paying taxes according to our culture, opinion, fear,
Learn the law and administer you taxes in accordance with the Internal Revenue Code, or
Wait for someone to do “no tax on tips/overtime”, or “abolish” the income tax or IRS, or somehow cause the culture to make tax law matter again.
There’s no need to rush this. I stopped filing in 2021. The IRS never contacted me, until I filed my 2021 return in late 2024. The CA FTB didn’t ask where my 2021 return was until 2024. When I found the right resources, in short time I felt confident enough to file an educated return for 2021. I do plan on breaking that return down in a future post.
Nobody will judge you if you pick options 1 or 3. Except Sam Adams:
“If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that ye were our countrymen.”
And frankly, this newsletter is not for you.
“Whatcha gonna do, HMMMMM?” —Sam Adams
Recourse
If you’ve decided you want to be one of the People, and encourage the agencies that serve you to follow the law, you’re probably now asking,
Well, I’ve got a W-2 here, and understand that it contains errors, how do I fix it? And what do I put on my return?
How do I get my employer to stop withholding taxes from my paycheck, since they’re not required to do so?
Do I get a bigger refund?
With a bit of resolve, this is all resolvable.
Big thanks to Pete Hendrickson for compiling and publishing this information in Cracking the Code and on LostHorizons.com.
Big thanks to Peyton Motaheddeh for promoting it and educating people through Freedom Law School.
Big thanks to Justia.com for allowing me to read cases from the comfort of my bathrobe.
Thank you for reading.
-Arjun
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