I work in NYC and just found out that my employer is not ducting federal and state taxes. Is that legal?

Answer 1

how long have you worked for them and how come your just figuring this out?

It's your responsibility to pay your taxes.

Answer 2

I have been a tax accountant for 27 years. My business is based in California, but if memory serves, I believe NYC also has its own income tax.

Assuming you meet the legal definition of an employee (regardless what the paperwork says), your employer is under no legal obligation to make payroll deductions provided the employer pays all amounts on your behalf and then adds those amounts back into your gross pay as "supplemental income" and in turn pays all taxes due on the supplemental income then adds those amounts to your gross . . . in an endless loop.

Now, the advice I am about to give you comes from 27 years working on employment tax assessment issues as a specialist in such matters. Read carefully . . . .

IF you submitted a correct and valid W-4 withholding form to your employer, the legal responsibility for payment of any taxes due on your wages shifts to the employer. If it turns out that when your taxes are filed you have not paid enough federal or state (or city) income taxes, you will be required to pay the INCOME taxes alone, and may claim a litle-known exemption from underpayment penalties provided 80% of your adjusted gross income has been subject to tax withholding at source. You will not be required to pay the social security taxes (unless you hire an inexperienced tax accountant who screws this up) for the simple reason that bona-fide employees are not expected to pay their own social security taxes as though they were self-employed. Instead, your employer will get a visit from IRS.

If this is how things turn out for you, be sure to attach a statement to the return informing the IRS of the efforts you went to in respect of getting your employer to comply with the law.

Since you probably don't want to be caught short come tax time, it is a good idea to make quarterly estimated tax payments. Federal payments are made using Form 1040-ES. Your State will also have a similar form available and NYC may also have one too.

Answer 3

It might or might not be legal, depending on what your job is. If you are classified as an employee, they should at a minimum be taking out social security and medicare taxes. Whether or not they take out federal and state income taxes depends on how much you're making and how you filled out your W-4 form.

If you are classified as an independent contractor, then they wouldn't take anything out - it would be your responsibility to make quarterly estimated payments.

I assume you just got your first paycheck from them, since you just discovered that they aren't taking anything out - now would be the time to get this clarified.

Answer 4

perhaps you have been hired as a 'leased employee' and are actually receiving loan disbursements for your efforts - double check your employment contract!

never heard of leased employee before?

leased employee is the term used by the IRS, whereas in Canada the term used is incorporated employee

essentially speaking, without a lot of legalese, you utilize 'employment loans' to your advantage - this is done through arms length third parties operating as employment service provider

in north america this system has been in use over 20 years, however it is not widely known by the average accountant

short clip to peak your interest - should you wish to do a little investigating on your own, the paragraphs below (on the website) have active links to the IRS sections that apply

In the United States, "incorporated employees" are called "leased employees" and you can find out how they are taxed in IRS Publication 15-A at page 4. You can download a PDF version of Publication 15-A from this web site by clicking here, or from the IRS web site by clicking here. Or you can see it in HTML on the IRS web site, where you can use the links to navigate through it, by clicking here. You will see that "leased employees" in the United States are taxed the same way as "incorporated employees" are taxed in Canada.

The IRS requirements for interest on loans to employees to avoid deemed interest are set out in IRS Publication 535 at chapter 5 under "Below-Market Loans." You can download a PDF version of Publication 535 from this web site by clicking here, or from the IRS web site by clicking here. Or you can see it in HTML on the IRS web site, where you can use the links to navigate through it, by clicking here and going to Chapter 5 and then to the last item in Chapter 5 - Below-Market Loans - which you can also reach by clicking here. You will see that deemed interest is dealt with the same way in the United States as it is in Canada.