Dick Polman analyzes Tim Geithner’s tax problems as regards his nomination for Secretary of the Treasury.
I can’t say I hold a great brief of Mr. Geithner, nor for anyone who has been in any way associated with the Fed or Wall Street, even tangentially, within the past eight years.
I can, nevertheless, request some clarity in the discourse:
Apparently, what Geithner failed to pay was the self-employment tax.
That is separate from the income tax that we all know and love.
Persons who are self-employed or who are contractors who do not have tax withheld must pay the self-employment tax in addition to the income tax. It covers the social security and medicare taxes that would have been withheld had they had employee status, as well as the employer’s contribution to those taxes. For most contractors and self-employed persons, it is equal to or greater than the income tax itself.
I first encountered it about 12 years ago, when I did a little consulting gig on the side of my regular job. I wouldn’t have known about it if I hadn’t just stumbled over the requirement. I had completed my 1040, then read something and realized, gee, there’s a whole nother form I have to fill out. (Technically, it’s the Form 1040 Schedule SE.)
I have a friend, a person of good will, who failed to pay it for several years when he first entered “contractor” status, even as he faithfully paid his income tax. Now he’s in audit hell as a result.
Why? He didn’t get lucky the way I did and stumble over it, and no one told him about it.
Yeah, I know, that’s not an excuse. It is, however, a reason, and, in my friend’s case, a quite legitimate reason. I assure you, he sincerely wishes he had known about, realized about, and paid the self-employment tax.
Especially when his caller ID says, “We’re from the IRS. We need to talk.”
Apparently, IMF considered Geithner to be in a contractor status and did not withhold Medicare and social security taxes.
If Geithner did his taxes himself, he can be condemned for being stupid.
If he had a tax advisor (and at his pay level, he certainly ought to have had one), he needs to see about getting several dozen refunds of his fees. Keeping clients out of trouble is what tax advisors are for.
The point I’m making is this: Some persons are talking about this as if Mr. Geithner failed the file his 1040s.
It’s a little more subtle and a little more complicated than that.
(Aside: When my mother went back to teaching, she learned somewhere along the line that she had to pay social security for the cleaning lady. I remember her stuggling with the forms every quarter. Wonder how many tax evaders out there aren’t paying the social security and medicare taxes for their home help?)