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Employer withholds withholding

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someguyoutthere

Junior Member
I'm in Michigan. My wife works for a company that's having big financial troubles. One of her co-workers said that someone on their board of directors said they've started tinkering with the paychecks.

Apparently, they're doing the normal withholding, but instead of paying taxes/Social Security with it, they're using that money for normal operating expenses.

When my wife and I talked about it, it became clear that we didn't know exactly what happens to that money when it gets withheld. Does it go directly to the government every pay cycle? Or do companies put that withheld money into an escrow account, to be paid to the government annually?

Presuming the tip is still accurate after the he said/she said, I can think of two possible situations.

a) The money is meant to go directly to the Fed/State every cycle, and every check is one more fraud.

b) It doesn't matter what they do with the money as long as it does indeed go to Uncle Sam at tax time, so while they may be incredibly reckless, it stops short of being actually criminal... until they can't pay the piper.

So, a bunch of questions. Is situation a) or b) the case--or something else? If the money is withheld but the government never gets it, are we personally liable? If she decides to be a tax whistleblower, will she face consequences from her employer (above and beyond simply working for a frighteningly shaky company)? Now that she has this knowledge (which she believes is credible even though it's third-hand) is she now implicated in the mess?
 


irsos

Member
Unless your wife has some responsibility for the payroll deposits or has some control over paying other creditors, she cannot be held liable. The liability rests with the officers and directors who are responsible for making the deposits and paying other creditors. If they are found responsible, they can be assessed what is called the "Trust Fund Recovery Penalty". This penalty can be assessed against more than one person. The Board of Directors and all the officers could face the penalty. Each person is looked at separately.

How often withheld taxes are remitted to the IRS depends on how big the payroll is. It could be as often as three banking days after each payroll or as infrequently as quarterly. They are not required to put the money in any special account in the meantime.
 

abezon

Senior Member
Your wife should take a few steps to protect herself.

1. Start double-checking every pay check statement to make sure the correct taxes are being withheld. Compare current pay stubs to earlier ones.

2. Save every pay stub from now on. The company may be bankrupt before it files W-2s & she may need to file using a substitute W2.

3. Check the W2 carefully to make sure the company reported her wages correctly -- the company might underreport her wages to the IRS so it does not have to pay as much social security/medicare tax. Essentially, it would withhold from her check as if she earned $50,000, but report $40,000 to the IRS as wages & use some of the money withheld from her paychecks to pay their share of the payroll taxes. On the one hand, this lowers her taxable income, but also lowers her eventual social security benefits.

4. If she's really concerned, she can report the company to the IRS now & the IRS may contact the company to double check the numbers.

5. Also gather information about any pension funds she has with the company, and/or the balances in any cafeteria plans/flex spending accounts.
 

LdiJ

Senior Member
Your wife should take a few steps to protect herself.

1. Start double-checking every pay check statement to make sure the correct taxes are being withheld. Compare current pay stubs to earlier ones.

2. Save every pay stub from now on. The company may be bankrupt before it files W-2s & she may need to file using a substitute W2.

3. Check the W2 carefully to make sure the company reported her wages correctly -- the company might underreport her wages to the IRS so it does not have to pay as much social security/medicare tax. Essentially, it would withhold from her check as if she earned $50,000, but report $40,000 to the IRS as wages & use some of the money withheld from her paychecks to pay their share of the payroll taxes. On the one hand, this lowers her taxable income, but also lowers her eventual social security benefits.

4. If she's really concerned, she can report the company to the IRS now & the IRS may contact the company to double check the numbers.

5. Also gather information about any pension funds she has with the company, and/or the balances in any cafeteria plans/flex spending accounts.
I honestly doubt that the company would under report her wages. The tax ramifications of under reporting her wages would be more severe than the SS and medicare liability....unless of course they are already in a serious loss position and end up shutting down.

However, there is a real chance that they might under report her withholding on her W2, so I agree that its critical that she keep every check stub and pay close attention to what's going on there....as well as having them just in case she needs to do a substitute W2.

Also, since no one addressed part of the question, I will.

If a company does not pay their trust fund taxes to the IRS (withholding, SS and medicare) the employees do not get penalized by the IRS. They are treated as if the funds did indeed get paid to the IRS.

Its also not necessary to be a whistle blower at this point. The IRS is very vigilant about trust fund taxes and they will notice if they stop getting payment, and will investigate quite quickly.

However, if you notice them doing anything strange with the paychecks or W2s...like under reporting withholding or income, then it would be time to be a whistle blower.
 

TinkerBelleLuvr

Senior Member
How often withheld taxes are remitted to the IRS depends on how big the payroll is. It could be as often as three banking days after each payroll or as infrequently as quarterly. They are not required to put the money in any special account in the meantime.
Slight correction here. The IRS could require that the taxes be remitted within 24 hours - a company has taxes of over $100,000 per pay period.
 

CraigFL

Member
As a business owner who pays these taxes, I don't see a good check and balance on these deposits until the Federal 941 tax form is filled out(quarterly). I deposit weekly into a bank and then report quarterly about the money. I suppose a business that was having a cash flow problem could under deposit funds and hope by the quarterly tax report they would be back on track paying what they owe + penalty with the quarterly return. But as we all know, once you start falling behind, it can be a real problem catching up. I always find it interesting that many of these companies do get caught(for many thousands of $$) and leins are placed on their business as can be seen on the corporation website for your state. If I was working for one of these places, I'd be looking for another job!
 

someguyoutthere

Junior Member
However, if you notice them doing anything strange with the paychecks or W2s...like under reporting withholding or income, then it would be time to be a whistle blower.
Here's the one part of the situation that's pretty simple. She's salaried, and hasn't worked for this company long, so she hasn't gotten a raise. It's pretty easy to tell that the checks have consistently been for the same amount.

One of her paychecks was sort of odd, though. Instead of a printed check with a stub detailing the withholding, one week she got a hand-written check on the regular check stock. Although the bottom-line amount was exactly the same as the ones before and after, the stub was blank.

In a case like this, does "odd" equal "improper", though?

Thank you, everyone!
 

LdiJ

Senior Member
Here's the one part of the situation that's pretty simple. She's salaried, and hasn't worked for this company long, so she hasn't gotten a raise. It's pretty easy to tell that the checks have consistently been for the same amount.

One of her paychecks was sort of odd, though. Instead of a printed check with a stub detailing the withholding, one week she got a hand-written check on the regular check stock. Although the bottom-line amount was exactly the same as the ones before and after, the stub was blank.

In a case like this, does "odd" equal "improper", though?

Thank you, everyone!
Ok...that's definitely a sign that they are playing games with paying the withholding taxes.

Now, if they had given her the handwritten check, and then LATER gave her a stub, or gave her a stub along with the handwritten check, that could indicate that they had to re-write her check for some reason. Sometimes checks get damaged or printed out on the wrong account number etc. However, if they did not give her a detailed stub, then its almost guaranteed that they are playing games. She should check her next stub to see if that pay period is reflected in her YTD totals.
 

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