What if my boss isn't paying his payroll tax?
June 17, 2006 10:49 PM   Subscribe

I don't think my boss is paying his payroll taxes... should I be concerned?

Earlier this year I started work at a small company (very small; I would be its second employee). At my interview for the job the owner explained to me that his business' accounting system was screwed up so he would have to pay me straight-up cash for at least a week after I started, until the system was fully updated. He was very apologetic but said that part of the reason he needed me so bad was because of problems like this; he needed, he explained, someone who could take the load off his only other employee so that he could have the time to get all the financials taken care of. This sounded fishy to me but I was desperate for a job so I took it.

For the first eight-to-twelve weeks I worked at Company X I was paid in cash, as he had previously explained to me, though it went a lot longer than he had originally said. I needed the money desperately, though, so I pretended not to care. The thing is, he only paid me the amount I was supposed to get *after taxes*.

Allow me to ellaborate: let's say I had been hired in at $20 an hour (I wasn't; I don't want to reveal the original amount or any other specific detail like that). After doing the calculations he figured that, after taxes, my net income was actually closer to $15/hour (again, a random number, but you get the idea). So that's what he paid me... in cash.

About four weeks ago he finally began to issue me formal checks, with breakdowns of what I contributed to the Feds, the State, FICA, etc. All my worries about the shaddiness of this job went away momentarily.

But it's one thing for my pay-stub to show he's paying those taxes, and another thing for him to actually be paying those taxes. As part of my job I have access to all the bank accounts of this company, and guess what? Nothing is being paid to any kind of account, goverment agency, etc. In other words I'm 99.9% sure he's not actually paying the tax that's being "withdrawn" from my gross earnings each pay period.

And on Friday I happened to answer a phone call from his accountant. My boss wasn't in so I asked to take a message, and the account replied, "Tell him to stop avoiding me... he needs to pay me soon or there's going to be serious trouble."

Well, that was sure sobering! I took the message and left it for my boss, who crumpled it up and threw it away when he got back in.

So here's the thing: if it turns out that my boss isn't paying the taxes that my checks says he is paying, where does that leave me? Is there any chance I could get into trouble? And since I was technically hired-in at "$20/hour", but am only receiving "$15/hour", what's going on with that extra $5? The way I see it that's my money, you know? Sure it goes straight to the gov'ment right now, but I usually get a tax-return at the end of the year... if he's not paying his tax, though, I won't get anything.

Also someone suggested to me that he'll more than likely fire me in order to "cut me loose" and possibly pretend I was never an employee at all for the tax reasons. Argh.

Is there any way I can find out for sure he's not paying the tax? Should I inform the IRS if he isn't? Am I in trouble come tax season if I can't explain my income because he doesn't end up issuing any W-2's?

Sorry for the ramble; any advice is appreciated.
posted by risk to Law & Government (25 answers total) 2 users marked this as a favorite
I would just say make sure you have documented the agreement that you would be paid $20 per hour i.e. something like a signed employment contract or at the very least, an email offer from your employer. If you don't have that, see other people's answers below. If you do, he is the one at risk and you hold the cards. You might want to mention tax returns to him and see how he reacts.
posted by zaebiz at 11:06 PM on June 17, 2006

Call the IRS.
posted by delmoi at 11:14 PM on June 17, 2006

As long as the paperwork is OK, you're OK whether your employer owes the government money at the end of the financial year or not. If more tax has been withheld on your behalf than your tax return shows you should have paid, and you have the magic chit from your employer thas says how much tax he has withheld, then you are the government's creditor, not your employer's; if your employer has not been paying as he should have, then the government is, independently, your employer's creditor.

If you haven't got your magic chit (which I gather is called a W-2 in your country), you need all the records you can get hold of, and an accountant. Keep every single pay slip.

At worst, you'll end up stiffed by the amount of any over-withholding that happened during your non-documented cash-pay period. If that concerns you, and another few months go by and your employer still hasn't got his record-keeping and tax-paying act together, ask for a pay slip that covers that period.
posted by flabdablet at 11:16 PM on June 17, 2006

I think businesses only have to make those payments once a quarter...? Pay attention to other replies, but personally I'd wait until I knew 3.5 months had gone by and THEN call the IRS.

You might want another job first... if there's ony two employees, it's not hard to figure out who snitched.
posted by Malor at 11:16 PM on June 17, 2006

I would call the IRS now. Better to get them on your side right away.

IANAL, but I would expect that if he's not paying them, you'll ultimately be responsible for taxes on your $15/hour. You should really get a lawyer, naturally.
posted by equalpants at 11:20 PM on June 17, 2006

Oh, yeah, I believe Malor's right about the payments being quarterly. But the call from the accountant is suspicious enough already, IMO.
posted by equalpants at 11:22 PM on June 17, 2006

write down an account of exactly what's been going on there, with exact dates and numbers, as it relates to your situation. keep this as journal so you have all your facts straight if you ever need them.
start looking for another job immediately.
find one quickly.
what kind of w-2 this clown will issue you, if he does at all, is beyond your control and you'll deal with it when you see what he does.
meantime, forget about reclaiming the cash he's been "withholding", and concentrate on getting out of there asap.
posted by BillBishop at 11:23 PM on June 17, 2006

when you have a job is a better time to be looking for another than when you don't. Finding a job when you're unemployed is much tougher. Jobhunt now, don't wait.
posted by anadem at 12:49 AM on June 18, 2006

Best answer: If he hasn't been paying your withholding, you could be out the tax money he should have paid when he was paying you cash - if it is undocumented. You probably would have a case against him if so but you know, if it comes to that it's probably a get-in-line situation. He should be liable for what he documented paying you thereafter... but I get a bad feeling about how it might go for you, the IRS, you know, is a bunch of fuckers and they want their money. What I mean is, if they can't get it from him they might come after you, even if you are not technically liable. So be ready for a fight if you don't want to have to pay for his putative dishonesty.

You might try asking him for statements detailing the financial specifics of that cash period. Just say you want it for your tax records, that's a totally reasonable request. If he gets in a real bind he could claim that you started out getting cash under the table (no understanding about tax withholding) which could shift some liability to you. If he balks it's another bad sign, if he produces it it proves nothing but at least you have documentation that he was claiming to be doing withholding for you. If he won't give it to you you might have grounds to claim unemployment if you quit or are fired, depending on your situation.

To me this sounds dead straightforward; I think he is short of cash and was skimming cashflow by paying you your "take home" pay but not meeting his obligation on your behalf to the government. It's just cash he gets to then spend. He might have every good intention of "settling up" when things get in order. But it's more sketchy than I would deal with in a job situation. I would be looking hard for new work. Frankly, I suspect your boss won't be in business much longer anyway. If he bounces one check on you walk away and find temp work. You'll probably never see that money again.
posted by nanojath at 12:52 AM on June 18, 2006

Oh, and when you say cash, do you mean like actual currency? Washington Lincoln Hamilton etc. Because I mean what? His accounting system is so screwed up he can't write a check? The only reason to pay straight up cash is to not leave a papertrail.
posted by nanojath at 12:56 AM on June 18, 2006

Whether or not he is legitmately withholding, you need to cut yourself loose from this person and the company that he or she runs. At best he's an utterly incompetant fool, at worst he's an dirty fraud. Either way you do not want to be dependant on this for your income.
posted by Rhomboid at 3:17 AM on June 18, 2006

You should probably ask your boss for "stubs" for the time you were on cash payment. If he figured out what your taxes would be, then he obviously was tracking them. If he was tracking them, then there is no reason he can't create stubs (even if they are just some record created and printed from MS Word) for you to indicate this. Just tell him you have some sort of crazy OCD when it comes to keeping your paperwork, and you are, obviously, going to be liable for that pay period.

If he comes up with a reason why he can't do that, then ask him if you could kindly have the tax portion back so you can claim the earnings on your own at tax time.

If he can't do that, he is up to something. Even at your example calculations ($5 an hour in taxes), that is $200 a week. He could be skimming thousands off your earnings.

You could also just make an anonymous tip to the IRS.
posted by necessitas at 6:00 AM on June 18, 2006

If he doesn't pay the taxes, you will most certainly be liable for them.

As troublesome as it is, you need a new job ASAP. Cut yourself loose from this dude.

...and be sure to save all documentation.
posted by bim at 6:18 AM on June 18, 2006

Yeah, you need to find another job. I was in almost the same situation once, except it was the accountant doing the skimming. Payroll taxes should go to the IRS monthly; the quarterly forms are in addition to that. If the boss doesn't make this right, you will have a gap in your Social Security history and you will owe taxes plus penalties on the full amount of income that you report to the IRS.

I would tell the boss that you have found a better job and are leaving (whether or not that's true) and ask for a W-4 or some kind of written statement of taxes paid for the month you worked for cash. As long as you have pay stubs and other documentation that says your boss paid taxes on your income, the IRS will go after him instead of you.

If the boss balks at giving you this documentation, call the IRS and explain the situation. They will go after the boss and should agree to waive any potential tax penalties for you. If you are worried about contacting the IRS, you may want to talk to an employment lawyer first. Good luck!
posted by naomi at 7:06 AM on June 18, 2006

Payroll taxes were dure last week for this quarter. If he's paying them, he did it very recently.
posted by whoda at 7:07 AM on June 18, 2006

Best answer: Several things are true:

--Withheld employment taxes are due to the government monthly, not quarterly. And by monthly it is meant "promptly at the end of each month for which they were withheld". There is NO grace period. There are also *heavy* fines for failing to pay promptly. (If your payroll is large enough, the money isn't due monthly, but semi-weekly!) Because this sort of fraud is so common - trying to hold onto the withheld income taxes as long as possible - the government treats it very seriously.

--Your employer is clearly in violation. The IRS, the state revenue agency, and the state worker's compensation people will all be peeved at him. You can contact any one of these or all of them and rat him out. Ethically, you should probably do so.

--You haven't done anything wrong.

--Your employer has no money. What this means is he is going to resist straightening it all out as much as possible.

--Whenever the shit hits the fan - and it will - you are going to get fired. This is true regardless of whether or not you are the one to cause the shit to hit the fan. Furthermore, you aren't going to get back money due you, because the employer has no money, and nothing is going to make that money magically appear. So, you need to find a new job immediately. This one is a bust, and the longer you stay, the more you'll hurt yourself.
posted by jellicle at 7:25 AM on June 18, 2006 [1 favorite]

I had a very similar thing happen to me. My boss withheld all the taxes from our checks, but he pocketed the money. At the end of the year, I never got a W-2. I called the IRS, who already had figured out the situation and were going after him.

They were very helpful and told me to estimate my earnings/theoretical withholdings and submit my 1040 like nothing had ever happened. They were quite clear that the 'missing' money was solely his responsibility and that if my taxes showed I had a refund coming, I would still get it.
posted by daveleck at 7:41 AM on June 18, 2006

Be careful. There is a lot of misinformation in this thread (speaking as a small business owner with several employees). jellicle has it right, though--that's the post to pay attention to.
posted by richardhay at 7:55 AM on June 18, 2006

Yeah, there are some mistakes in this thread. Disclaimer: I'm not a tax accountant.

If you keep your pay stubs that show withholding and document everything, you can show the IRS that you did nothing wrong. Expect not to receive your W-2; on February 2nd when it doesn't arrive, or if it is incorrect, write your employer a letter requesting a W-2 (or a corrected W-2), and keep a dated copy.

You'll have to file Form 4852 if your employer fails to issue a proper W-2 by April 15th. Form 4852 is essentially where you state what you were paid, and either your estimate or what your employer told you was withheld. By filing time the IRS *knows* how much was withheld, incidentally, so you can also call them to find out.

With regard to the first 12 weeks where you were paid in cash, you're screwed. You owe Federal and state (if any) tax on that money - unless you have a document from your employer showing that proper withholding was done - and you should probably pay it as soon as you can, using the 1040-ES estimated tax form. Your other option, which is not to declare this income, is egregiously against the law and the penalties for this kind of violation make it so seriously not worth it.

Start looking for a new job, because this one's not going to last very long.
posted by ikkyu2 at 8:58 AM on June 18, 2006

My accountant mothers opinion:
He is in deep shit. You are not responsible for any of this and should report it as soon as possible.
posted by Suparnova at 1:03 PM on June 18, 2006

I aree with what jellicle said. I once worked for an employer that wasn't paying payroll taxes. He got in trouble, we employees didn't - although the company nearly folded.

If he isn't paying taxes or paying his bills, the company is in trouble. If he is not paying taxes, he is probably not making good on other statutory requirements, like workers comp. And if you are entitled to any benefits, like health insurance, he is probably not paying that, either.

From the IRS:
How do you report suspected tax fraud

If you suspect or know of an individual or company that is not complying with the tax laws, you may report this activity by completing Form 3949-A. You may fill out Form 3949-A online, print it and mail it to:

Internal Revenue Service
Fresno, CA 93888

If you do not wish to use Form 3949-A, you may send a letter to the address above. Please include the following information, if available:
* Name and address of the person you are reporting
* The taxpayer identification number (social security number for an individual or employer identification number for a business)
* A brief description of the alleged violation, including how you became aware of or obtained the information
* The years involved
* The estimated dollar amount of any unreported income
* Your name, address and daytime telephone number

Although you are not required to identify yourself, it is helpful to do so. Your identity can be kept confidential. You may also be entitled to a reward.
posted by madamjujujive at 2:06 PM on June 18, 2006

jellicle hit the bullseye. And daveleck's story is accurate. The IRS will not penalize employees whose withholding taxes were not remitted to the IRS. There may be difficulties in documenting what was withheld, though. You will not get credit for the "cash pay" period, because there was no documentation of gross, withholdings, and net. If your check stub includes those figures, it is a representation to you that the calculations are accurate, and that the money has been sent to the IRS as required. The IRS takes the hit if that was not true, but they will come after your boss.

If you are paid in cash, there is no such representation, and it will be interpreted as: your boss was inviting you to join him in a joint effort to screw the IRS, and by taking the money you said, "Uh, okay". And it never works.

Get the hell out of there.
posted by megatherium at 7:52 PM on June 18, 2006

Response by poster: Not sure if this is customary or not, but I'd like to thank everyone for their response to my question. It really is a great help. Three things, though:

1.) I am, and have been, looking for a new job for quite a while. Unfortunately the same reason I took this one is the same reason I haven't found a new one: the economy where I live sucks right now. Sucks bad. You have no idea.
2.) My employer has provided me with paystubs for the time I was paid only cash. That's part of the reason I was hopeful, until I found out he's not paying the payroll taxes.
3.) I'd still like to know if there's a way for me to be 100% sure he isn't paying the withholding tax before I submit any complaint to the IRS. For all I know he's paying it out of his own pocket, through a personal checking account I have no access to. This seems unlikely, but it gives me pause for hope... is there a way to find this out anonymously? I (obviously) do have the company's tax-ID number.

posted by risk at 11:31 PM on June 18, 2006

Not all business' have to pay their taxes weekly.

Just look at Oregon's Withholding calendar.
They have semi-weekly, monthly, and quarterly payment plans.
posted by whoda at 6:07 AM on June 22, 2006

According to the IRS Pub. E (Employers Tax Guide), they too appear to accept payments Monthly or Semi-weekly , depending on how much tax was paid in the previous year.
posted by whoda at 6:15 AM on June 22, 2006

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