Discussion:Withholding taxes not paid by employer
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| 19 April 2006 | |
| A software company closed its doors in March 2004. My friend, an employee, filed his 2004 tax return using the info on his last pay stub and claiming the amounts listed as withholding as tax payments. Of course, the failed company never filed W-2s and, as expected, had not paid the withholding taxes to the IRS or FTB.
What is his course of action? Refile using the net take home pay as his income and then paying income and FICA taxes on this net? Could he claim a fraud loss? The owner has left the country and had no assets in the US for the IRS to sieze. | |
| 19 April 2006 | |
| Simple, actually. Form 4136? which is a substitute W2 form...fill it in and you treat it just like the W2 and go on. | |
Inagpurwala (talk|edits) said: | 19 April 2006 |
| JR1 is correct. No need to refile - amend the return. Just use substitute W2 form and you will be a ok!
PS: No one suppose to disagree with JR1.Inagpurwala 14:18, 19 April 2006 (CDT) | |
| 19 April 2006 | |
| The company is considered an agent of the IRS when it comes to tax withholding. Even if they do not deposit the taxes as they are required, the employee will still get credit for the taxes withheld. So I agree with previous responses and be sure to hold onto those pay stubs as that appears to be only proof of taxes withheld. | |
| 19 April 2006 | |
| Thanks for the responses. However, see below.
After further discussion with my friend, his employer simply paid him a net check identical to the amount paid in the previous year when a payroll service had been used. The check stub in 2004 does not have details as to gross salary, deductions, etc. His only evidence is that his net checks (bank deposits) were the same in 2004 as they were in 2003. There is no direct evidence of withholding on the part of the employer. | |
| 19 April 2006 | |
| RED FLAG!! An employer is required to report to an employee what his gross wages and withholdings amount to, leaving a net check. Your client assumed he was getting payroll, but essentially he received non-employee copensation...hence 1099 Misc.
So...it is really self employment income. | |
| 19 April 2006 | |
| And this employer should be reported to the IRS there is a form to do this. Include as much information as to the employer's whereabouts as you can. | |
| 20 April 2006 | |
| I don't like disagreeing with Sandy...but I do. Many small employers short cut this and hand out a regular check for those on salaries. Since the numbers didn't change over two years, it's not presumptious to suggest that this has always been payroll. To now suggest that it isn't and that the employee has to bear those taxes TWICE! seems a bit over the top. His employer screwed up, and has now left. On examination, who knows which way the auditor would go, but I'd bet he's past 50/50 leaning towards helping the little guy over the employer. Do the 4136, attach a copy of the 03 stub,and let fly. What's the worst that could happen? It's rejected and he has to pay what you want him to pay up front, which he probably shouldn't and wont'. Feel free to disagree...(even tho' you'd be wrong. :) ). | |
| 20 April 2006 | |
| If this was a 2005 return I would agree with JR. Since this a 2004 return aren't we due some juicy details? | |
Natalieiwasa (talk|edits) said: | 20 April 2006 |
| I agree with JR. Any reasonable person would say he's still an employee, and therefore the withholdings are the same as in the prior year. | |
| 20 April 2006 | |
| HEHE JR...I don't mind the disagrement...in fact, the state division of employment in the clients state should also be notifed. I am sure this person met the test as an employee and should have been treated as one, but if they did not withhold and pay payroll taxes, then isn't it essentially a self employment requirement?
Maybe an IRS agent would agree and that is great....I just don't think that the client got the right end of the whole deal :) | |
| 20 April 2006 | |
| No, Sandy, it's an employer in violation of the law, and both the state and fed will handle it, when and if they can find him. It doesn't change the employee's status at all. | |
| 20 April 2006 | |
| Well, I DO agree that the employer violated the law in any case. I can see that the employee would feel as though he were still an employee; nothing had changed except a 3rd party p/r company was not any longer issuing checks.
But as you said, it is still the employer's responsibility and he defrauded the government AND his employees. I just did not think that IRS would be so agreeable if the employee could not prove withholdings. But if they will, then that is a great move for our government, don't you think?
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| 24 April 2006 | |
| JR1, I don't think you meant a form 4136, since that is Credit for Federal Tax Paid on Fuel. I assume you mean a Form 4137, Social Security and Medicare Tax on Unreported Tip Income. That essentially treats the wages as tip income and subjects the employee to the employee portion only of the FICA and Medicare taxes and on that, I agree wholeheartedly. We have done this on several occasions over the past 13 years.
Sandysea's argument is to suddenly say that the sin of the employer is now to be cast upon the employee is erroneous. The rules concerning whether an individual is an employee or an independent contractor say nothing about whether or not the employer gives the employee a net check and fails to properly account for withholding amounts. We deal exclusively with delinquent taxpayers so this is well within our bailiwick. | |
| 24 April 2006 | |
| Federal fuels tax, employee withholding taxes...details details. LOL. | |
Atyoursvctax (talk|edits) said: | 10 February 2009 |
| I have a client who worked as an employee for a spa company. Her first two checks were distributed as regular payroll checks with withholding amounts shown; after those two checks, the company declared bankruptcy and changed names. She continued working for them under the new name. Her next seven checks were drawn on a local bank, they did not have a paystub and did not show any withholding amounts. Since then, she has been laid off and is collecting unemployment.
She received only one W-2 and it was from the first company who paid her first and only shows $486 worth of income. She has not received any other forms from the new company working under the new name. She did not keep any good records and cashed the checks at the bank they were drawn on without making copies. The checks were also for gross amounts not net; there is no indication that the new company withheld any payroll taxes of any kind, which she says she did not realize at the time. She made $9/hour and was paid for 40 hours each week for seven weeks. Her checks were for $360. I have advised her that she must claim that income on her taxes. I looked at Form 4137 as suggested above, but wouldn't Form 8919 be more appropriate? and if so, does she need to also file Form SS-8 and why? She was an employee; at no time did they tell her that she would be paid as a contractor. If she does need to file Form SS-8, how do I get their Federal Id number? All we have is a name that she is recalling from memory since she did not keep copies of the checks or any other records. The phone numbers that she has for the company do not work so there is no way to contact this company. | |
