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Tax trouble for another federal appointee

What is it about folks in high government places? So many of them just can't seem to keep their taxes in order.

The latest instance is Timothy Geithner, President-elect Barack Obama's choice to run the Treasury Department.

And the tax troubles have delayed Geithner's confirmation hearing until next week, meaning that when Obama finally gets into the Oval Office, he won't have his man at point to deal with the economic crisis.

Geithner Geithner failed to pay $34,000 in taxes from 2001 to 2004.

According to documentation released by the Senate Finance Committee, which is considering Geithner's nomination, his tax troubles came in the form of self-employment taxes. He apparently didn't pay them on money he earned while working for the International Monetary Fund (IMF) from 2001 to 2003.

In 2006, the IRS notified him that he owed $14,847 in self-employment taxes and $1,885 in interest from 2003 and 2004. He paid after an audit and the IRS waived penalties for those tax years.

Vetting issues: Then last fall, the Obama transition team members discovered that Geithner also had not paid his self-employment taxes for 2001 or 2002.

Hmmm. The Obama transition folks found the other unpaid taxes. Uh, hello, IRS. Where were you guys?

He paid $25,970 in back taxes and interest for those years just days before his appointment was announced.

Geithner said that he did his taxes himself and then gave them to an accountant to review. I presume he has a new accountant or at least is now using tax prep software.

The bottom line, though, as Geithner found out, is that the taxpayer is the one ultimately responsible for paying the correct tax due regardless of who helps (or in this case didn't help) fill out the 1040.

Accounting questions: As expected, Geithner's explanation has raised the eyebrows of accountants and their professional organizations.

Tom Ochsenschlager, vice president of tax for the American Institute of Certified Public Accountants, told the Associated Press that it would be difficult for someone preparing a tax return for a self-employed person to skip the Social Security and Medicare tax lines.

The tax is due, in most instances, when you make more than $400 in self-employment income. Obviously, Geithner raked in much, much more than that.

"It's such a basic mistake that I kind of wonder if we know all the facts," Ochsenschlager said of Geithner's situation. 

Filing your SE taxes: As a self-employed person myself, I can certainly understand how anyone would like to skip over this tally.

Every year, I run the rough numbers and think, "Hey, that's not so bad!" Then I do the more precise calculating and add in the amounts from Schedule SE and think, "$@#%&*!"

Yes, this little jewel of a form adds another 15.3 percent in taxes to your total. It's essentially the self-employed person's version of FICA. That 15.3 percent amount consists of 12.4 percent for Social Security (old-age, survivors, and disability insurance) and 2.9 percent for Medicare (hospital insurance).

But where as an employee you pay only half, or 7.65 percent, of that overall total, as an independent business person, you now have to cover both the employee and employer percentages.

Sure you get a bit of a break by being able to deduct one-half of the amount as an adjustment to your income at the bottom of your Form 1040. But still, it can bump your taxes up more than you expect.

So don't forget about the SE amount and be sure to include it in your estimated taxes that you should be paying so that you (a) don't owe a huge tax bill come April and (b) don't end up paying extra for under withholding during the tax year.

The IRS has more information on self-employment taxes at this Web page. The tax agency also has links to forms and publications that self-employed taxpayers will find useful here.


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Jan Dillaha

I love the idea that you do it yourself and get the accountant to review it. It keeps the accountant from signing the return AND gives you a plausible excuse for the error. Can we see a copy of the invoice where he paid for that service? ;)

Chad, I don't review client prepared returns either. Either we prepare and I sign or we don't bother. Mr Geithner isn't the sort of client I would want to work with.

It's appalling that this is the best guy we could find for this job.


15.3% + 38% + state/local, it is a wonder anybody can make it over those obstacles. Well, actually most self-employed people do fail. Few are able to overcome the government's take. That really is a shame.


nytimes.com has more on his taxes:



As least he tried to do his taxes and get reviewed by accountants. I don't think that many congressmen have tried to do their taxes.

I also don't think the tax softwares (Turbotax or Taxcut) would help him in 2001 to 2004. He received W2s and yet he had to file Schedule SE. I had trouble to link W2 (without social security taxes) to Schedule SE in Turbotax.


Honestly, if you don't want to be squeaky clean please don't accept any government positions. Actually, it's sad we have to pay 15.3% in social security and medicare.

At least he wasn't so bold as to go "Hey, statue of limitations are up so there's nothing that can be done."


Chad Bordeaux

So much for the "change" everyone was promised.

He did them himself and gave him to an accountant to review? Who is his accountant? How many other accountants out there are taking client prepared tax returns and reviewing them? Not I. If our firm does not do it, we do not want any part of it.

As Ochsenschlager said, it does not sound like we were given all the fact. Of course, we seldom are in these matters.

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