Discussion:My employer has not deducted FICA. Who is responsible?
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Discussion Forum Index --> Consumer Questions --> My employer has not deducted FICA. Who is responsible?
| 2 August 2006 | |
| Hi All,I'm an employee. My employer told me that they have not deducted FICA and Medicare taxes from my paycheck during the last year. Honestly, I have not realized this at all. They say they are going to pay these taxes for me to IRS and then I need to pay my employer back in a few installments.
My questions are: 1. Do I HAVE TO pay this amount to my employer? According to the related posts in the forum, it seems that it was the employer's responsibility to deduct these taxes from my paycheck. 2. I need a lawyer in Chicago area to talk to about this, any recommendations? Thanks, Ucan | |
Bushmaster (talk|edits) said: | 2 August 2006 |
| YOur employer made a mistake and now you want to see a lawyer over this even though it was YOUR expense to pay? Good luck. | |
| 3 August 2006 | |
| Here is a question posted by another forum member:
"If the employer did not withhold FICA and Federal Taxes from the mployees in tax year 2005: 1. Is the employer liable for all the taxes due for each employee? 2. If so, can the employer deduct from the employee paycheck money owed for 2005 in 2006? And here's the reponse from another member (I assume a lawyer): "The employer is held liable and no he can't deduct it from the employee post haste". I believe I'm in a similar situation. My intention is not to get away with my portion of FICA. On the other hand, all of a sudden I'm asked to pay around $13,000. I want to know which party is legally responsible for this, or at least does my employer have any responsibility? Thanks | |
| 3 August 2006 | |
| Ucan, if the $13,000 is FICA only then your wages were around $170,000! Yes, your employer (former employer??? or soon to be???) was responsible, but did you not ever notice that your net pay didn't make sense? If the $13,000 is both FICA and federal/state, you owe the federal and state, no question. I don't believe you have an obligation to pay your employer back, but you may not have a job either. | |
| 3 August 2006 | |
| Yes, my wages were around $170K in 2005 fiscal year. Apparently, FICA changes my net pay by around $1,000 and because it has never been deducted from my pay check, I did not notice it at all. If there was an instant change from one month to the other, I would have noticed it for sure. I paid for my federal/state taxes, no problem about that.
So, you say if I defend my rights as an employee, I might loose my job??? I believe US is a country of laws and regulations and one is not punished for sticking with these laws and regulations. Hope I'm right though :) Regards. | |
| 3 August 2006 | |
| So do I. But when you deal with this side of the street every single day for over 20 years you become cynical at best. I sat here yesterday close to tears trying to explain to a 53 year old widowed client who, through a tragic series of events, didn't file for several years. To try to explain to him that the IRS doesn't care and this huge tax gap they're talking about is based only upon those who file and don't report correctly and doesn't even acknowledge all those who are paid "under the table" and never file or pay, but they'll take every penny he has left in the world, how do you explain that? I love the USA and wouldn't want to live anywhere else, but honestly, you can stick "with these laws and regulations" and still get punished. I try everyday to tell my clients what the right way is and help them to do it the right way to the best of my ability knowing that the IRS is fighting me every step of the way. Down off my soapbox. Good luck and I hope your employer does the right thing. | |
| 3 August 2006 | |
| I totally understand and appreciate your input.
I will post how this turns out. Thanks. | |
| 3 August 2006 | |
| I'd really appreciate some advice on this issue:) For 18 months, I was classified as an independent contractor by my employer. They gave me a 1099 in Jan 06 for the 2005 year. I usually worked about 50 hours a week and was paid a flat hourly rate. I worked in the offices of the employer, used their computers and they told me my work assignments and directed me on how to complete them. I never worked from home or used my own equipment for any of the work. I was expected to be at work at 830 AM till 5 PM or later like all the rest of the 100 or so employees at the office. I got a employee conduct handbook, pens pencils and sticky notes all provided from day one by the employer. I even was awarded employee of the month while still an 'independent contractor.' I have not paid my taxes yet, and recently talked with some accountants to figure out how much I would owe. It's quite a bit, but I can and will pay what I need to in order to be in compliance.
Does anyone know if this is a case where I may have been misclassified? Do they owe me money for the overtime I worked? What about being vested in the employee profit sharing plan, and all the other benefits I was not given? For 18 months, they kept telling me what a great job I was doing and that they were going to hire me on the payroll "in a couple of weeks" so I guess I got further and further behind on taxes while they misled me! A few months ago, the company hired an HR director and she very quickly presented me with a job offer letter to be a regular w2 employee. They lowered my pay but I accepted the offer and went on the regular payroll instead of invoicing them. Then after just a few weeks I was offered a job at a different company and gave them 2 weeks notice. Technically, I'm still an employee of the same company, but not for long since I'm taking paid time off to transition to my new job. My PTO ends next week. What shall I do? Thanks, all! | |
Michaelstar (talk|edits) said: | 3 August 2006 |
| First let me make this very clear - I am NOT an attorney, I am a CPA so this is not intended to be legal advise. Sounds like the employer needs a real payroll service to start. It makes no sense that the employer waited until the end of the year to find this error. They needed to file and pay these payroll taxes quarterly. This is a real bone head error! So now at the end of the year they find the error and decide they did not w/hold these fica/medicare taxes - they correct your wages and offset what should have been withheld to employee loan. They still are short p/r taxes paid so they owe penalties and interest on this shortfall to the govt - not your worry. Otherwise, they adjust your federal w/holding to offset the shortage and then when you go to file your 1040 - your most likely would owe federal taxes. That would have worked in their favor but not yours. They could also pay this amount on your behalf and gross up your payroll for this additional compensation. Yes, it was their mistake and now it appears they are forcing their hand as to how to deal with this while really still somewhat looking out for your interest. Is it legal - that it what attorneys are for so I would have to disagree with Bushmaster. It was not your fault that your employer made the mistake but on the same note, someone who earns $170k should probably be looking at their pay stub to confirm that things are correct and ask questions if they do not know what to look for. Still, it was not your error but to go to an attorney might cost you more than it is worth as I hear they tend to be far more expensive than CPA's. On an ethical note, they should not be charging you any interest and really to be fair, they should also probably split the $13K with you - $6,500 you make up over 26 payroll periods and they add $6,500 in compensation - you pay the taxes. I do wish you luck but if you like your job, try to find a middle ground. | |
| 3 August 2006 | |
| IRM references Reg. 31.3102-1(c) regarding employee and employer fica liability.
http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_C%2C_Sec._31.3102-1 | |
Bushmaster (talk|edits) said: | 4 August 2006 |
| Michaelstar, I made no claim as to the legality of anything. The fact remains is that his half of SS and Medicare should be paid by him. That is a right v wrong opinion, not legal v illegal. Agree that a highly paid employee should be looking a little closer at his pay stub and probably shouldn't rock the boat too hard. | |
Michaelstar (talk|edits) said: | 4 August 2006 |
| Bushmaster, I did not intend to imply anyone was making any statement as to "legality". Just covering my six was all. I agree with you 100% - this is a right vs wrong issue that the employer caused and is now forcing upon the employee who's only mistake was not to be paying attention to their pay stub. Someone who makes $170k s/b using a CPA for mid year tax planning and had a CPA reviewed the pay stub - it would have been noticed way back then. The employer should just admit the mistake was their's and take the hit. It "was" the employee's liability to pay (at the time)but not her fault that it was not paid or w/held. "Us" not being attorney's - who knows, maybe the employee does have a legal right in this situation and if she does she should exercise that right but also understand that it may cause her more grief in the long run. Actually I would like to know if she does have recourse. In the past when bookkeepers have made p/r errors like this, I correct it and just tell the employer - it is their mistake and they need to make it up. Gross up the tax and add it to the employee compensation. Never have come across a $13k error.
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| 4 August 2006 | |
| Under the regulations, it is the employer's duty to withhold; however, the Service has the right to collect the 6.2% FICA and the 1.45 Medicare from the employee if the withholding was never done. Alternatively, the Service has the right to collect both halves of the FICA/Medicare taxes from the employer. | |
| 5 August 2006 | |
| Riley, have you ever seen the IRS collect from the employee in that situation? Not only haven't I seen it, I know of no mechanism by which IRS could do so. If anyone has any experience with the situation and actually has seen it take place, please post specifics of how it was done. | |
| 8 August 2006 | |
| The mechanism is Reg. 1.3102-1(d), “………Until collected from him the employee also is liable for the employee tax with respect to all the wages received by him……..”
The practical effect of this regulation is to allow the employee to voluntarily pay his share of the FICA and Medicare tax in order to insure that his coverage under the Social Security system is not interrupted. For example, it is not uncommon for taxpayers to voluntarily pay their share of the FICA and Medicare tax by filing Form 4137 with their Form 1040. | |
| 14 August 2006 | |
| Just to give an update:
I had a meeting with my company's tax department last Friday. They started the disccussion as if it was MOSTLY my fault to not to check my paychecks and SOLELY my responsibility to pay FICA taxes to government. Then I shared with them all the related content that I've gathered in this forum as well as Reg. 1.3102-1 ("...The employer is liable for the employee tax with respect to all wages paid by him to each of his employees whether or not it is collected from the employee. ") They were surprised and definitely not prepared. I made clear that I wanted to pay "a portion of" this FICA back myself but the amount and the terms had to be fair for both parties. We agreed on involving the office managing partner for our next meeting. In the end of the day, I'm trying to easen the lump-sum burden as much as possible. Will update you after our second meeting. Still open to ideas, suggestions and recommendations. Regards, Ucan | |
| 18 August 2006 | |
| I wasn't talking about a voluntary payment. I'm saying that IRS has no way to enforce collection from the individual. I think it's safe to say we all agree on that. | |
| 18 August 2006 | |
| I guess I'll jump in late to the party. (I was in Nicaragua when this thread began). Speaking ethically, not legally, if I am overpaid through an honest error (assuming the employer is honestly stupid and not dishonestly stupid), I have a moral obligation to repay the amount I have been overpaid, assuming it is within my power to do so. (To be clear here, I am talking about the EEFICA, not any portion of the ERFICA.) While the employer may have messed up, a highly paid employee should not be grumbling too hard about paying back what he never rightfully should have had to begin with. Now whether or not the employer charges interest to the employee during the payback period, maybe that is a subject for negotiation with the employer. But I have a hard time thinking that Ucan could expect the employer to pay Ucan's employee FICA and be griping hard about it. | |
Michaelstar (talk|edits) said: | 19 August 2006 |
| JD - I do follow your position but only to a degree. As CPA's - we are to look at a situation and hopefully arrive at a fair solution.
Yes, Ucan is now making a good living and should now have hired a good CPA to assist with these issues in the future - and tax prep planning/services. It would be unfair to assume that most understand these things at the level we as CPA's do - if they did - they would not need CPA's and we might be out of a job. That said, it appears that Ucan is learned in other things and not low level things like payroll. Back to what happened. It was the employers mistake - NOT the employee's. To even suggest that the employer should charge interest is almost offensive and this part of the equation should not be subject to any negotiation. For the employer the "interest" now becomes the cost of doing business - the employee is off the hook for the interest - to suggest anything different is unfair to the employee - they should not be penalized because of a DUMB (bad accounting) employer mistake. Who care if it was the employers bookkeeper who made the mistake - the employer takes the hit and should learn from the mistake - hire a CPA to review the books ongoing and don't rely on these "full charge" bookkeepers who seem to make these type errors time and time again. I would agree that over the next year (maybe 18 months) Ucam should make payments through p/r withholding for the unpaid fica/medicare that was not withheld by the employer due to the employers mistake. After all, the employee will be credited for these payments and so it would only be fair that they remit back those amounts but it should not cause hardship to the employee. The IRS gives 36 months for payment plans of $10k or less - so 18 months would seem fair. I look forward to the updates from Ucam as to what happens with this case. | |
| 10 November 2006 | |
| Dear All,
We had a couple of meetings with my company's accounting department. They are well aware of the fact that, legally, it's their responsibility to pay the FICA. And, I made it clear that I'm willing to pay my portion of the FICA. What they offered is they are going to pay FICA we owe IRS and I will pay it back to my company. They came up with a payment plan for me to pay it in installments in a year. I proposed another plan which suits my requirements better (2 year of installments starting next April) They accepted it in a second without any discussions. Now both parties are happy without any discussions. I work one of the major global management consulting firms and they hire us from top MBA schools and invest a lot for us. Given this, I believe, my firm focused on not pissing me of - which might lead me leaving the firm - more than getting this unpaid FICA from me. I know I would have even convince them that they should pay the FICA, not me. But frankly, I totally believe that it's my debt to IRS - no matter if it's my company's mistake. A good ending for all. Thanks so much for your help. Ucan | |
| 13 February 2008 | |
| UCAN,
Sorry for the late post and glad it has worked out but.... I assume you are one of those that you describe as being from a "top MBA school"? If so, and even if not so, I find it very hard to believe that you received a salary of ~$170k/year and "didn't realize" that they weren't withholding FICA & Medicare. BS. Was this your first job? Had you never received a "regular" paycheck before? Were you unfamiliar with the withholding requirements of employers? Or do you never look at your paystubs? Come now...be honest. | |
