Is it illegal in NYC for an employer to neglect withholding Federal & tax income tax?

Question

I have worked at my job in NYC for two years. The first year I owed $900 in income tax. I then requested to have my filing status changed to single-0. Our bookkeeper told me he did it and I accepted his word. Then this year, surprise… surprise, I owed $4,000. After some inquires, I found out that my bookkeeper was not withholding federal or state tax from my commission checks. So, to sum up: I was filled at single-1, I had a very low salary and therefore had a low tax bracket. I was paying taxes for that tax bracket. He never took federal or state tax from my commission checks, which put me in a much higher tax bracket…. Therefore I owed a huge amount of money. I tried to get him to change 1) my filing status and 2) add tax on my commission. He got defensive and started yelling. Nothing was changed. Eventually I went to my boss and asked him to speak with the bookkeeper. My request was ignored. Nothing changed. I kept pushing… talking to the bookkeeper, payroll and my bosses. I was to

Answer 1

Depending on what your job is, you might be considered an independent contractor, and that's why they aren't taking out taxes. Sometimes employers call people "independent" and issue 1099's when their job duties are really those of an employee, but it's very possible to legitimately be classified that way depending on your job. And your mention of commissions makes it possible although not for sure that you could be an independent contractor.

Is the person you're doing the work for taking out social security and medicare? If they are, then they do NOT have you classfied as independent, and should be taking out income tax also as directed by the W-4 you file with them.

What form did you get from them at the end of last year showing your income? A W-2 is given to an employee, a 1099-misc is given to an independent contractor and shows the income as "non-employee compensation". If you got a 1099, read this to see if your job seems to really fit that definition: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Answer 2

Sounds to me like you are an independent contractor working on a commission only basis. No taxes (federal, state, local, social security or medicare) are required to be taken out of your pay.

You have to be your own bookkeeper on this and send in estimated tax payments to avoid the large tax bill at the end of the year.

Here is the federal form for estimated tax.

http://www.irs.gov/pub/irs-pdf/f1040es.pdf

Answer 3

Though I am by no means a Tax expert....I would think that with her limited income, You would be better off fileing jointly....even possibly taking the standard deduction. It all really boils down to the math. I would advise that you at the least get some advice from an accountant to be sure all the I's are dotted and t's crossed for sure

Answer 4

I have been a tax accountant/warrior for 27 years. The employer is in the wrong--period!

You do owe any income taxes due on the commissions and I hope the company did not try that old ruse of issuing you a separate 1099-MISC for the amounts. Nevertheless, legally, you are not liable for underpayment penalties because you qualify for a little-known exemption, provided that 80% of your adjusted gross income on the tax return was SUBJECT to tax withholding at source. Similarly, you are not liable for social security taxes on those commission because you were, I must assume, a bona-fide employee.

Working this out with the IRS can be tricky business but it can be done. Remember (and don't gripe about it) that the income taxes never deducted by your employer ended up in your pocket and it is your responsibility to pay them. But as to underpayment penalties and social security taxes, here you have a very stong non-liability case in your favor.

I recommend you hire a very experienced tax preparer. Also, if it turns out that you are forced to pay underpayment penalties and social security taxes I must advise you to seek out a lawyer without delay, since your state will have statutes of limitation likely triggered by your having acquired actual or even what is called "inquiry" notice of the employer's negligence---and a clear cut case of negligence it is.

One final piece of advice, before it gets "lost" or "misplaced" get a copy from your employer of your W-4 form; it will be important evidence in the future.