Employer Asking Me to Pay Taxes Retroactively?

[adjusterjack]

Does that make sense?

It does now.

So, how much money (dollars) does the employer want you to pay him for those two months?

 

[Zigner]

Thanks everyone for the replies. I mentioned in the original thread, but maybe I wasn’t clear: I was TOLD I would be a 1099 contractor. I filled out all the necessary paperwork, but the employer never actually filed that/paid me the way he should have paid a 1099 contractor for those two months. I say it was “under the table” only because taxes were not withheld and I was not even in the books as a 1099 contractor (although I was told I would be. Does that make sense?). I didn’t want nor approve being paid off the record in such a manner.

I worked for the employer for a total of 8 months, but was paid this way (“under the table,” for explanation’s sake) for two months. For the other 6 months, he decided to make me a W2 employee, but he is asking that I reimburse him for the two months worth of un-withheld taxes. Does that make sense?
Thanks again for your advice, everyone!

Did YOU report the 2 months of income and pay any applicable taxes on it?

 

[LdiJ]

Thanks everyone for the replies. I mentioned in the original thread, but maybe I wasn’t clear: I was TOLD I would be a 1099 contractor. I filled out all the necessary paperwork, but the employer never actually filed that/paid me the way he should have paid a 1099 contractor for those two months. I say it was “under the table” only because taxes were not withheld and I was not even in the books as a 1099 contractor (although I was told I would be. Does that make sense?). I didn’t want nor approve being paid off the record in such a manner.

I worked for the employer for a total of 8 months, but was paid this way (“under the table,” for explanation’s sake) for two months. For the other 6 months, he decided to make me a W2 employee, but he is asking that I reimburse him for the two months worth of un-withheld taxes. Does that make sense?
Thanks again for your advice, everyone!

You did not answer the most important questions. 1) Did he report that two months of income in many manner, W2 or 1099? 2) Did you include that income on your taxes in any manner?

You don't have to answer those questions here, but you need to consult a tax pro and give the info there, or nobody can give you any remotely useful advice.

 

[Taxing Matters]

I worked for the employer for a total of 8 months, but was paid this way (“under the table,” for explanation’s sake) for two months. For the other 6 months, he decided to make me a W2 employee, but he is asking that I reimburse him for the two months worth of un-withheld taxes. Does that make sense?

It would make sense if the employer had the change of heart during the same year that this tax is at issue. Then the employer could simply file a corrected 1099NEC to zero that out and issue to you a Form W-2 for it before you filed and paid your income tax returns.

But if you filed the return on time with this income included and have paid it, I would not pay the employer again for it. That's putting too much trust in the employer when there is reason to suspect the employer tries to cut corners to save money. Instead, in that case I would seek a refund from the IRS for the over paid FICA taxes.

There is a reason why he wants the money. The IRS will give him a break on the amount owed if he pays all the employment taxes that the IRS determined is owed. But he doesn't want to pay it out of his pocket. If he sends you a W-2 for income and shows proper withholding on it, that would aid you in getting a larger refund and then after you get the refund and have the money in hand you can pay back to the employer the employer what it paid the IRS for you. That way you don't risk the employer screwing you over after you give him the money.

 

[Moralessk8]

It does now.

So, how much money (dollars) does the employer want you to pay him for those two months?

Roughly $900. But I’m thinking, shouldn’t I be paying the IRS directly at this point? I never asked him to pay them on my behalf, and he has not provided a record of paying them. I never asked him to do this.

 

[LdiJ]

Roughly $900. But I’m thinking, shouldn’t I be paying the IRS directly at this point? I never asked him to pay them on my behalf, and he has not provided a record of paying them. I never asked him to do this.

Consult a tax professional since you don't want to answer the specific questions asked. Nobody can give you any more than general advice without the answers to those questions.

 

[zddoodah]

I filled out all the necessary paperwork, but the employer never actually filed that/paid me the way he should have paid a 1099 contractor for those two months. I say it was “under the table” only because taxes were not withheld and I was not even in the books as a 1099 contractor (although I was told I would be.

Not sure what this means. The only "necessary paperwork" is a W-9, which takes all of about 30 seconds to complete. What does "never . . . paid me the way he should have paid a 1099 contractor" mean? The way that an employer pays an independent contractor is by transferring money in some way (typically by written check or electronic payment). There are no taxes withheld for an independent contractor.

I didn’t want nor approve being paid off the record in such a manner.

That's easy to say now, but you obviously did the work and accepted payment. Right? That's all the approval that you needed.

Does that make sense?

Sure, so I'll ask my questions again:

1. Since you have "not work[ed] for this employer for over a year," that means we're talking about income you received in 2022 (or possibly earlier). Right?

2. Did you receive a 1099 for this income?

3. Did you receive a W-2?

4. If you received a 1099, or if you received neither a 1099 nor a W-2, did you declare and pay taxes on the income when you filed your state and federal tax returns for 2022 (or the applicable year)? In other words, did you already pay to the IRS and the CA FTB the payroll taxes that your former employer is now asking you to pay back?

But I’m thinking, shouldn’t I be paying the IRS directly at this point?

Again, this is 2022 income, right? If so, then shouldn't you have done that already? Returns for the 2022 tax year were due over five months ago. Did you not file yet (hopefully with an extension)?

he has not provided a record of paying them.

Have you asked for evidence of payment? If not, why not? If so, what response did you receive?

 

[Taxing Matters]

Returns for the 2022 tax year were due over five months ago.

The 2022 Forms 1040 were due this year by April 18, unless the taxpayer submitted a proper request for extension by that date. If an extension request was submitted timely and the OP has not been notified that the extension request was denied (a pretty rare occurrence) then the OP has until October 16, 2023 to file the return. Since we are still in September that extended has several more weeks to go. But even with an extension, most of the tax owed should have been paid by April 18. So either way, the OP should have already paid for this.

 

[Litigator22]

California
I was getting paid under the table for two months (unbeknownst to me - I was told I was a 1099 contractor). My employer decided to do the right thing and retroactively report those payments to the IRS properly. I never withheld any portion of my pay for tax purposes. After not working for this employer for over a year, he’s asking me to reimburse him for the taxes withheld that he decided to pay (which should have been withheld from my check in the first place). Am I liable to pay him if I never agreed to such transaction?

PLEASE TAKE NOTICE! You need to become acquainted with the "Clean Hands Doctrine" and its prohibitory consequences.

"The maxim prevents those who have acted improperly in some way relating to the matter at hand from seeking a remedy or relief. Essentially, anyone with 'unclean hands', someone who has in some way contributed to their own injury or loss, or has in some other way acted dishonourably relating to the matter will be prevented by a court from remedy or relief regardless of how the adversary has treated them. The maxim protects the integrity of a court."

 

[LdiJ]

Roughly $900. But I’m thinking, shouldn’t I be paying the IRS directly at this point? I never asked him to pay them on my behalf, and he has not provided a record of paying them. I never asked him to do this.

I will say though, that unless he paid you approximately $12,000 for those two months $900.00 would possibly be way too much for the employee share of SS and Medicare taxes.

 

[Bali Hai Again]

I will say though, that unless he paid you approximately $12,000 for those two months $900.00 would possibly be way too much for the employee share of SS and Medicare taxes.

6k/ month x 12 = 72k/yr. 72k/yr = $34.62/hr. This is within the realm of possibility especially if OP is skilled labor. Any overtime worked would be at $51.93/hr. My ”guess” is the employer paid the FICA tax for both for some reason and wants the employee share returned and rightfully so. The OP doesn’t trust that the employer paid his/her share. The OP owes the employer their share of the FICA tax and is trying to get out of paying by raising these technical issues. The question was asked if the OP asked for proof (which is easy to do) from the employer that their share of the FICA taxes were paid by the employer. The OP refuses to answer because they don’t care if the tax was paid or not.

The important thing is the tax was paid. People receiving benefits rely on this money to survive.

 

[LdiJ]

6k/ month x 12 = 72k/yr. 72k/yr = $34.62/hr. This is within the realm of possibility especially if OP is skilled labor. Any overtime worked would be at $51.93/hr. My ”guess” is the employer paid the FICA tax for both for some reason and wants the employee share returned and rightfully so. The OP doesn’t trust that the employer paid his/her share. The OP owes the employer their share of the FICA tax and is trying to get out of paying by raising these technical issues. The question was asked if the OP asked for proof (which is easy to do) from the employer that their share of the FICA taxes were paid by the employer. The OP refuses to answer because they don’t care if the tax was paid or not.

The important thing is the tax was paid. People receiving benefits rely on this money to survive.

He does not necessarily owe the tax to the employer. If he already included the income on his tax return and paid self employment tax as a result, he is not obligated to the employer. It could be to his benefit to accept the W2 and amend his previous tax return to remove the self employment tax, (in which case he would need to reimburse the employer for the employee's share only) but he is not obligated to pay the tax twice or to reimburse the employer before getting the refund from the IRS.

While the amount in question is within the realm of possibility it is a bit high for the typical employer who is trying to skirt properly classifying his employees as employees. The higher paying employers tend not to play those games.

 

[Bali Hai Again]

He does not necessarily owe the tax to the employer. If he already included the income on his tax return and paid self employment tax as a result, he is not obligated to the employer. It could be to his benefit to accept the W2 and amend his previous tax return to remove the self employment tax, (in which case he would need to reimburse the employer for the employee's share only) but he is not obligated to pay the tax twice or to reimburse the employer before getting the refund from the IRS.

While the amount in question is within the realm of possibility it is a bit high for the typical employer who is trying to skirt properly classifying his employees as employees. The higher paying employers tend not to play those games.

I agree OP is not obligated to pay the tax twice. If he has paid the tax already he should be upfront and just say that. I don’t believe he has paid the tax and is looking for a way around paying. But as you pointed out, without further info. We are just guessing.

 

[Litigator22]

I agree OP is not obligated to pay the tax twice. If he has paid the tax already he should be upfront and just say that. I don’t believe he has paid the tax and is looking for a way around paying. But as you pointed out, without further info. We are just guessing.

Dear Bali Hai:

I would like to direct focus and hopefully engender professional discussion on whether resolving the OP's issues with his former employer may call for the application of the "Clean Hands Doctrine".

So, may I please have your kind indulgence and professional attention to the following hypothetical - which I see as somewhat analogous to the issue at hand?

Employer "A" is engaged in importing and selling consumer goods. Employee "B" knows of a source to export counterfeit merchandise - say smart phones. "A" and "B" conspire to import the bogus phones with "A" to front the money to the exporter, market the merchandise as genuine and split the net with "B".

Things run smoothly for a time until CBP seizes and confiscates a shipment of bogus phones. Criminal investigation is pending. However, in the meantime "A" is out-of- pocket _x_ dollars being the amount he paid for the commandeered shipment.

Question #1. Does "A" (theoretically speaking) have civil recourse against "B" with respect to reimbursement or restitution of any part of his said out-of-pocket costs?

Clearly, "A" would be asking the court to adjudicate subject matter systemically tainted with fraud, i.e., enforce an inherently illegal agreement.

My second question is how does my hypothetical which is imbedded in the conspiracy to illegal import counterfeit consumer goods and sell them as genuine differ in principle from conspiring to engage in a violation of Internal Revenue Cade requiring the withholding of an employee's income tax. Each of which have criminal consequences.

 

[Taxing Matters]

My second question is how does my hypothetical which is imbedded in the conspiracy to illegal import counterfeit consumer goods and sell them as genuine differ in principle from conspiring to engage in a violation of Internal Revenue Cade requiring the withholding of an employee's income tax. Each of which have criminal consequences.

In principle there isn't a difference between them if both parties are aware that what they are doing is illegal. That agreement is the essence of a conspiracy. In most cases I encountered while working for IRS there was no evidence of any such agreement and indeed the employees tended to be rather convincing in their anger when told their boss screwed them over.

Moreover, few employees kmowingly make that bargain without something extra from the employer to cover the extra tax the employee pays as an independent contractor vs being an employee. The main benefit for most employers out of this is saving the employer's share of FICA (Social Security and Medicare), unemployment and worker's comp taxes. The arrangement shifts those obligations to the worker. If the worker is properly classified as an employee, the independent contractor arrangement screws the employee because worker now is paying both the employer and employee share of FICA, and has has to pay the worker's comp and unemployment tax or not be covered by those programs.

The worker, if he/she knows that the employer is pulling a fast one on the IRS and state and shafting the employee to do it would demand compensation for the extra money the worker must now pay for all these taxes. If the employer covers all that so the worker is made whole then there is no point to the tax scheme because the employer is still paying the taxes, just to the worker rather than to the IRS. In short, in these arrangements the IRS is not losing out on any money. Thus the reason the IRS enforces the withholding requirements for employees is not directly about the money. It's about making sure that employers don't cheat their employees by shifting some of employer's tax burden to the employee. There is an indirect money benefit for the IRS, too, but that is more in the abstract.

The employer would certainly benefit from illegal classification of the worker, but the employee doesn't typically get anything out of it. The worker pays more with this scheme. For that reason the employer doesn't tell the worker that it is misclassifying the worker to save the employer money. Instead they tell the workers that they are indeed independent contractors and thus worker is responsible for all those taxes. Telling the employee what's really going risks sinking the whole plan. The upshot of all of this is that in my experience most workers do not know they are misclassified and are angry at the employer for screwing them over when they find out.