What would be the consequence if they do not agree to withhold my tax and report my income to IRS?
-You can claim it back from IRS.
At this point, the future green card is more important to me. I would not do anything to put my future green card into problem. By the time I come back to US, my son is already 20.
-Up to you if you want to donate money to US Government. But USCIS will question you that why you work in U.S. without a legal status/authorization (they may not realize that you work outside US because you pay the tax).