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Employer did not pay payroll tax withholding

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sg1188

Junior Member
What is the name of your state? Ohio

I have worked for the same small Company "A" as a salaried manager for the last 5 1/2 years. This past August my employer, to cut costs because of financial strains, took myself and another employee (we are the only two employees left in the management department) off of the payroll service, and began to process our pay manually in the office. We still received the same amount of pay each week without a payroll stub. The checks were written out of the office and on Company "'B"s checkbook (also owned by the same principals of Company "A"). Now we find out that none of our federal, state, and city withholding taxes have been paid since August. Our employer has said he is not going to pay them, and is going to issue us 1099's for the period after the payroll service was stopped.

Any advice on this matter? I know that there's a form #4852 that I can file with my tax return with the erroneous W2 & 1099, but is there anything else I should do?

Thanks in advance!
 


paffleck

Junior Member
In the end it really won't matter. I have recieved both wages and 1099 income in the same year. You are still responsible for Medicare, Social Security, and Federal and State income taxes. The difference is that you usually report 1099 on a schedule A as "self-employed" income. When you file the schedule A, you also will be required to pay Medicare and SS taxes as "self-employment" taxes. Any tax software will automatically do this.

There are some advantages to this by the way. You can deduct some things on schedule A that you normally couldn't as an employee. For example, home office deduction, business expenses (cell phone, etc). Normally you can't deduct these things if used in the business as an employee.
 

anteater

Senior Member
If the work relationship between you and the employer has not changed, then you are still an employee, not an independent contractor. There is no magic wand that an employer can wave that changes employees to independent contractors.

That said, I see you as between a rock and hard place. You can either:

1) Accept the situation (until the IRS sniffs it out and whacks the employer), report the 1099 income as self-employment and pay the self-employment taxes. But I wouldn't try deducting a bunch expenses as the previous poster has suggested. You aren't really self-employed.

2) Blow the whistle on the employer. Filing Form 4852 is likely to be the equivalent of blowing the whistle. You are going to end up trying to explain why that 1099-MISC that the IRS receives really should be a W-2.

How is your relationship with the employer? As unpalatable as it may be, any chance that you could hold a discussion with them about this not being legal. And, if they are in financial difficulty, offer to accept lower wages if they do the right thing?
 

Snipes5

Senior Member
You can file your taxes as normal, include your W-2 wages on line 7, and list the other income on a form 4137, Social Security tax on unreported tips.

Change the word "tips" to "wages". You will have to give the employer's name and address... this will set the IRS after the employer, but they would have caught up with him anyway.

Snipes
 

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