My employer has been paying us with a check and not deducting any taxes, what are the consequences ?

Question

There are 3 of us working for this guy for over a year. what happens if he gets reported ?

Answer 1

It is possible that you are considered independent contractors. If that's the case, your employer isn't doing anything wrong. It's not his responsibility to withhold your taxes. You'll just have to pay them yourself. I hope you've been responsible enough to save a portion of your income all year, otherwise you'll have a hefty bill in April.

If you are actually employees (not independent contractors) then your employer could get into trouble. But the consequences for you are exactly the same. Be prepared to pony up your taxes in April.

Answer 2

I have a canned explanation to apparently clueless independent contractors:

Some employers try to get around paying employment taxes (social security and unemployment) and other employee benefits like workers compensation insurance by improperly classifying employees as independent contractors. The basic issue is the amount of control the employer has over the worker. If you are required to show up for work--personally--at a particular time, punch the clock, use the employers equipment and are paid an hourly rate, you are an employee. If you didn't understand the difference when you posed your question, I would be even more convinced that you are an employee. What is your preference, Slotted or Phillips? Complete an IRS Form SS-8 to get an official ruling on your status. This will help you get unemployment if you get fired. When you file your income tax return, you can attach Form 8919 Uncollected Social Security and Medicare Tax on Wages and only pay the employer's half of social security. You will still have to cough up all the income tax. IRS and the states are stepping up enforcement in the abuse area.

Answer 3

More problems for employer than you. I am assuming he is either paying you "under the table" or as a subcontractor. If he is treating you as a sub and gives you a 1099-misc after the year-end, you file as self-employed using Schedule C and pay both income tax and Self-Employment tax at 15.3% (2 times the FICA and Medi normally whithheld from an employee). If he is paying you under the table, you should still report the income, as his neglect to do things right does not eliminate your responsibility to report all earned income on your tax returns.

If empolyer gets caught treating an emplyee as a subcontractor, the IRS or State can reclassify the payments as wages and charge him for employment taxes he didn't withhold, along with some stiff penalties and interest.

These guys eventually get caught as someone tries to collect unemployment at some point, or even worse, the employee gets injured and the EE should have been covered by worker comp insurance and wasn't. Wouldn't want to be that employer in either case!!!

Answer 4

First of all, you need to pay your own taxes. Don't think that you are off the hook for that.

Next up, the guy is probably trying to classify you as a contract employee. If that were the case he would not have to deduct your taxes. You would be responsible for that. He would also not have to pay the employee taxes for you either. However, lots of employers try to do this when they have regular employees. They seem to think that just calling an employee a contract employee makes them a contract employee. Employers can get into trouble for doing this.

Check out this page from the IRS. It covers how employees should be classified and has information about independent contractors.
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Answer 5

If he gets reported you will most likely not suffer any of the consequences. It was HIS FAULT for not deducting the proper taxes and paying them. Don't worry, I'm in the same kind of situation (boss deducting taxes however, not paying the government).

You, on the other hand, need to figure out your (I am figuring you live in the US) state tax brackets by how much you make. Try googling : where you live + tax bracket, or tax percentages.

There should be an official site on how much you should be taxed. Deduct that from your yearly salary and you'll get a number.

If you need more help, contact your local government office and ask them some questions. This is not your fault, however, you do need to fix it.

Good luck.

Answer 6

did you get w-2's last year or a 1099? is he deducting any taxes like FICA or state income tax? If he's not deducting any taxes and not giving you a w-2 or 1099, he's committing tax fraud - and you're getting screwed on your social security as a well as fed inc taxes - you shouldn't have waited a year to bring this up - if you rat on him you will wind up owing the taxes, but he will have more taxes to pay as well as interest and massive penalties if not criminal charges - Is he even paying unemployment taxes for you - you really get screwed if he isn't - start looking for another job and then report him to state Labor or taxation dept

Answer 7

Consequences? You better cover yourself, keep good records and pay your taxes. You can make quarterly payments direcct to the fed and state government. Sure, your employer may be wrong for not matching your SSI if your are an employee, however his wrongs won't make you right.
Keep good records and contact a tax return professional.
I know of someone who got financially whacked by the federal government for failure to pay.

Answer 8

Is your status that of employees or is he paying you as independent contractors? You need to be clear on the distinction.
If you are in fact company employees, then what he is doing is illegal. If you are independent contractors, then he has to provide you an annual 1099 form showing total payments and it is up to you to pay all your taxes.

Answer 9

If he's been doing this all this year, you are going to have to come up with quite a tidy sum to pay your taxes, unless you've set up a savings account for that purpose.

Answer 10

the consequences are you better have the money to pay your taxes, those are the consequences.