Tax Laws Even Trip Up the Pros

By Dave Carpenter — AP Personal Finance Writer

If Timothy Geithner can get confused over the laws governing the withholding of tax, anyone can, experts say.

U.S. tax laws are particularly complicated and full of land mines for the unsuspecting, as everyone from the Treasury secretary nominee to self-employed business owners and average taxpayers can confirm.

The Association of Chartered Certified Accountants, the global body for professional accountants, views the U.S. tax regime as one of the world's most complex, according to Chas Roy-Chowdhury, London-based head of taxation.

"Even tax professionals could get it wrong," he said, referring to the requirements involving self-employment taxes that tripped up Geithner as well as U.S. tax law in general.

Pitfalls abound, especially for amateurs.

Here are some questions and answers about possible errors related to the withholding of taxes, and what you can do to protect yourself.

Q: What did Geithner do?

A: A U.S. employer normally would withhold half of your Social Security and Medicare taxes from your salary and pay the other half, but the International Monetary Fund does neither so it's the employee's responsibility. Geithner failed to pay self-employment taxes for money he earned from 2001 to 2004 while working for the IMF.

He paid some of the taxes in 2006 after an IRS audit discovered the discrepancy for the years 2003 and 2004. But it wasn't until President-elect Barack Obama selected him late last year to head Treasury that he paid back most of the taxes, incurred in 2001 and 2002.

Q: How could someone like Geithner have made this "innocent" mistake, as Obama calls it?

A: Numerous tax experts say they understand how he might have either gotten ensnared by or overlooked the arcane IMF-related filing requirements. Some note that the tax filing advice given to IMF employees is voluminous and complicated.

Don Williamson, an accountant and professor of taxation at American University's Kogod School of Business, calls Geithner's actions "negligent and perhaps reckless." But he says he deserves at least a partial pass for the faulty 2003 and 2004 returns, since that involved a technical matter his tax preparer should have known about.