Legal question about filing taxes.?

Question

I was employed last year by a family owned bussiness. When I was first hired I was told that the first three months I would not have taxes taken from my check. After the three months, once she decided to keep me on the payroll, she would then have me fill out paperwork and begin to deduct taxes from my paychecks. She never did start taking taxes from me. Now it is tax time and I am not too sure what to do. She has not brought up anything about giving me a W2 or anything regarding taxes. If she does give me a W2 it will hurt me serverely because I will end up owing Uncle Sam. When I spoke to my in laws about this I was told that in order for her to get a tax break she has to claim that she payed an employee, therefore she will most likely want to give me a W2. My question is that doesn't she legally have to not only give the goverment some of my pay in the form or taxes but also match the money that is pulled from my paycheck for my social security?

Answer 1

Sounds like she was paying you as the 'under the table method'. Legally she cannot 'decide' to keep you on payroll for three months and not withhold taxes. As an Employer they are responsible in contributing the employees' taxes withheld (Federal, State (if applicable), Social Security, and Medicare) and matching that contribution. Employee wages have to be reported accordingly as well. Doesn't sound like she will be issuing you a W2... Because she would be liable for not properly reporting and paying the taxes. It isn't as though she set you up to get a 1099... Those are usually for nonemployee compensation. If she has you set-up as an employee she cannot revert to cover her butt.

I am curious though... What did your pay stub look like and reflect when it came to the taxes. What they are doing is not legal... Be very careful when you are put into a situation like this. At one time my Mom worked for a Company who supposedly was paying and contributing the taxes... It was withheld from her check. To find out the Employer never reported it and it was a mess for her.

Definitely seek the advice of a tax consultant on how you would need to proceed on reporting your income that way you lessen your liability if anything comes up in the future.

Answer 2

If you meet the requirements to be considered an independent contractor, she'd give you a 1099, not a W-2, and would not withhold any taxes or pay the social security match - you'd have to do that. If you're an employee getting a W-2, then yes, she'd have to take out taxes and also pay the social security/medicare match and probably some other, smaller tax amounts.

One way or the other, you have a definite problem and a major tax liability. Didn't you wonder after the initial three months just what was going on? You had to realize that taxes would be expected from you at some point.

First thing to do would be to ask your employer just what her intentions are as far as tax paperwork for 2006, what form you will get, a W-2, a 1099?

Answer 3

You need to report your income. I doubt if you will receive a W-2, since that would require the employer to match your Social Security and Medicare taxes, and to withhold those same taxes from your pay and remit them, as you have correctly suggested she is required to do.

If you receive any document, it will likely be a 1099. But you don't have to wait for that (and it may be inaccurate, inflating what was actually paid to you). File your taxes as a self-employed person. You will declare your gross income, deduct your expenses, and pay income tax, social security, and medicare on the net after expenses.

As a self-employed taxpayer, you will pay basically double the Social Security and Medicare that an employee pays.

Answer 4

Ask your employer if she's going to issue you a 1099-misc? Basically, that would mean she's paying you nonemployee compensation. If she issues you a 1099, she also has to issue one to the IRS as well. However, this would mean you would have to file a Schedule C with your 1099 wages on it. You would end up paying the federal taxes that she didn't withhold out of your wages. Either way, you are still responsible for reporting that income to the IRS.
If she doesn't issue you this form, then she isn't reporting anything to the IRS. Which is illegal, by the way. But, if she isn't reporting it the IRS has no way of knowing you received it. If she hasn't said anything about withholding wages, then she hasn't been.

Answer 5

Yes. Your family member who doubles as your employer could really be putting you both in a bind. If she isn't conducting her business with integrity by also following tax laws, I'd be looking for another job. People without integrity eventually cause the demise of their businesses. When she's caught out and investigated, she's definately going to sink her business into a hole, even though it might be doing well.