... they will likely cite that they are required by law pursuant to by section 3402 of the US tax code. Let's take a look.
26 USC § 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. ...
What are "wages"? More than likely, your company's HR or hiring official has not read the code themselves OR the definitions.
26 USC § 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 ...
What is an "employee"?
26 USC § 3401 - Definitions
(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.
I can guarantee that your employer has just been doing what they were told and have not read a lick of the US tax code. Sure seems like you don't fall within the definition of an "employee" within that code. But won't the IRS get 'em!?
If they truly believe that they weren't required to withhold income taxes from your paycheck (hint: they're not required), then they have this as ammunition:
26 USC § 6724 - Waiver; definitions and special rules
(a) REASONABLE CAUSE WAIVER
No penalty shall be imposed under this part with respect to any failure if it is shown that such failure is due to reasonable cause and not to willful neglect.
Remember: there is always a man/woman behind those three letters that, just like you and most other people, do not know the tax code themselves and do not know how to read statutory law. They are, however, able to be informed - just like you.