I dont get taxes taken out of my payroll check.....what happen at tax season?

Question

ill end up with 24,960 at the end of the year that i got paid. im full time employee but he calls it contract. (i dont know why)

i get no taxes taken out. just a personal check that says his company name in it. (hand written)

every time i ask him if i will be screwed at the end of the year he just says " i'll give you a 1099."


am i in trouble?

Answer 1

Yup, and you were right with asking him if you will be screwed at the end of the year, because you will be. He's treating you as an independent contractor rather than an employee. By doing this he's making you responsible for 100% of the social security and medicare taxes instead of you paying half and him paying half. And he doesn't pay FUTA (Federal Unemployment Tax) or SUTA (State Unemployment Tax) either.

I have attached an IRS link to employee vs. independent contractor and a link to a 20 factor test the IRS uses for employee vs. contractor classification. He may be violating employment law by classifying you incorrectly. But if so, he's doing it on purpose to avoid taxes.

Just to let you know, if you are an independent contractor instead of an employee, you will be responsible for federal withholding and state withholding taxes, as well as Self-Employment (SE) tax. SE tax is 15.3% of 92.35% of net self-employment income, and is supposed to be paid on a quarterly basis by the independent contractor (in this case, you).

Oh, also, if you are self-employed you are supposed to pay taxes quarterly, on 4/15, 6/15, 9/15 and 1/15 of the following year. To avoid an underpayment penalty you either need to owe less than $1,000 or have paid 90% of current year tax (awfully hard since you won't know how much current year tax is until the year is over) or 100% (110% if high income person) of prior year tax.

Jonathan, you're off slightly with employee %, it's 7.65% not 7.25% (social security is 6.2%, and medicare is 1.45%)

Answer 2

Yup, if you consider owing a lot of money as being in trouble.

Your income tax will probably be a little over $2000 if you're single, less if you're married and your spouse doesn't work. But you'll also owe around $3500 for self-employment tax. This is for social security and medicare. If you were an employee, the employer would have paid half of it, and your half would have come out of each paycheck, so it wouldn't seem like such a huge amount.

You were supposed to make quarterly estimated payments every 3 months, so at the end of the year most of your taxes would have been already paid just like they are for people who have taxes deducted from each paycheck. If you didn't do this, you'll owe penalties at the end of the year for under-withholding.

And depending on just what your job is, you are also probably being screwed, since your "employer" is paying you as a contractor, and you are probably legally an employee. Some employers do this, so they can avoid paying employer taxes on your wages. See http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Answer 3

The legal issues are, 1. you are required to file unless you make a really tiny amount of money so technically you are breaking the law. 2. if you owe money then you could be changed with tax evasion As a practical matter though, if you don't owe the IRS then they won't do anything. And if you had taxes taken from your paycheck you may not owe anything. But you can only get a refund for the past two years. So you have forfeited 4 years of tax refunds. That's just dumb. If you do owe them money then penalties and interest will pile up. Better to get it taken care of as soon as you can. As for the tax evasion, that won't be a problem if you come to them and get it straightened out.

Answer 4

The above contributor is 100% correct. An independent contractor will pay approx 15.3% for social security and medicare tax when the personal tax return is filed. An employee will get 7.65% deducted from every pay check, and pay no more for this when the tax return is filed. (Thanks PepsiLime for the correction, which I've incorporated above.)

Oh, and this is completely independent of any income taxes that may be due.

Generally speaking, if you're being paid to be at a job for a fixed number of hours, versus being paid as specific tasks are completed, then you should be treated as an employee.

Answer 5

Not yet, you are not required to withold, only to pay. As a contractor you are responsible to withold your own taxes and other deductions for payment. For this year find out how much aproximatley you will owe on that income and start saving that much plus your current tax amount. That way when you have to send in your taxes you will have the cash to pay and then you won't be in trouble.

Answer 6

could owe a lot in the end. depends on how much you make. can`t get pay in cash huh? see he will claim you as an employee so no hiding there. i knew someone who took a dip in pay and was payed a very small percentage by check rest cash, the result was he showed to little to pay on. be care full. if he pays you a high wage well of course you.ll pay in alot depending allso on your dependents soforth. luck.