Discussion:The employer failed to deduct 8.5 year FICA and after employee reported employer threatened to input the owed FICA as W2 wages of 2007

I have a client that is running into a bad situation that his (a public traded IT contract house) employer did not pay his FICA since 1999 until middle 2006 he found the issue through the yearly report from social security report(Because the SSA report voided his earning history list in the report, and visited SSA office and showed the copy.). He reported it to his employer. But his employer started to cut the FICA from his paycheck only from January, 2007 since they told him that starting to in the middle of 2006 would raise the red flag immediately.

The thing is that the total amount summed up is a big number up to $40,000, which his employer did not deduct from his paycheck through those years. He requested all the time for a discussion and negotiation on the solution. But his employer refused his requests. Now his employer threatened him to add the sum as his this year's W2 wages and force him to pay the tax for it since they prepared a so-called promissory note to ask him to sign to pay them back each week over $200 for 200 weeks and he rejected to sign it without negotiation.

The fact is that FICA tax is the employer responsibility to deduct it from each of his paychecks. It has been their mistakes year after year or bad accounting practice or failure to follow the auditing practice to find it out their mistake. How do they file for SEC report as a public trade company? How is their annual auditing practiced? I know contract house always does its best to squeeze money from contracting employees. my client deserves a negotiation or fair solution. But they simply rejected his requests. Did they deserve take any hit of their mistakes of many years?

I did want to support to fight about it. Does any one have tips or knows a good attorney to help me? Does anyone think the inputting as W2 wages is a acceptable option?

Thanks, gq

From the thought that employer should take the hit of what the year-after-year mistakes they made as a public trade company, how have they performed the annual auditing? From some point, if they caught it in the end of the first year, my client could just easily got his part straight a lot earlier than now.

For now, I believe the negotiation b/w the two sides is a reasonable thing to do. But even for this the employer rejected it, which is beyond the stories I read this forum.

Please shed more insight. Thanks gq

Don't get bogged down that this is a publicly traded company. Annual audits only do sampling and look at procedures. They have a dollar amount that is considered material (usually at least $1 million) and anything under that is frequently not caught. More than one company has failed after receiving an unqualified opinion.

Possibly you are referring to Arthur Anderson & Enron??

My client received the W2s of those years with the federal and state tax deducted properly while FICA box left empty for those years. No clue as of how the employer withheld or filed their tax to government.

My client got the annual SSA report like all of us. He noticed after some year 2005 suddenly the previous years' earning lists were voided as no earning at all, and he called the SSA local office and went to there and asked why there were contridictory list of the same previous years' earnings. And he was told that that's was error and correction was done and he need to talk his employer if FICA was paid. And he did talk to his employer which took the employer long time to figure it out what's going on till Sept 2006. Then employer asked him to sign the promissary note that deducts 200 dollars each week, and he rejected to sign without negotiation. Again it come to now that they threatened to input the amount of his part as W2 wages of 2007.

He got paid weekly in paycheck.

The so-called promissary note that employer issued called him 'employee. That's why they started from 01/2007 to deduct FICA for him.

Am I right?

At the same time your client should be willing to sign a note agreeing to repay this sum over a period of time, but this should not be income to him this year. It can only be income if he leaves employment and the employer forgives the note and does not prosecute him for the balance due.  The only thing to negotiate is any interest due on the note.

He is still working for the employer currently. He can quit the job if it is for a better result.

His employer gave the note that requires the weekly $200 deduction for 220 weeks from his paycheck or from his bank if he quits the job with the employer, which is two harsh. He then has been asking for the negotiation with his employer, but his employer has refused al the time.

Right now, the employer sent email to him to threaten that:

"Accordingly, if we do not have the signed paperwork from you by 12/14, the money will be imputed as payment of wages and included in his total taxable income for 2007. Please understand that this is not up for negotiation."

What is the worse sequence of this? Is it worth going to seek attorney's assistance? Or, just take the employer's option to let it be added as wages if the additional tax is less than the total amount of what he supposed to pay?

Second, this is my theory on what is going on. It sounds like the employer wants the employee to pay his portion of the taxes through a structured repayment plan. If the employee does not agree to this by 12/14/2007, the employer will pay the employee the ER share of the taxes and report it as income to the EE (subject to SE).

If this is the case, I would suggest your client agree to the repayment. Otherwise he will have eight years worth of returns in which he should have paid FICA/Medicare.

My question is, what about amended payroll returns?

Note that if the employer files 941c with his current quarter, there would be no interest charged to my knowledge. The basic mechanics of the form do not call for this.

Is this a statuatory employee? Is the W-2 box checked showing as such?

In you RIA federal Tax Handbook, check out Paragraph 3020. The company has the responsibility to withhold, and they are the ones that will be hit with the penalties.

In this case, which is better for the client? He can repay the SS that wasn't withheld, or have it imputed. So he pays $200 a week, or he pays tax on the equivilent amount. My recommendation is to sign and get it over with. If he is not going to continue with the company, he can also fill out a worker classification request which will bring the IRS to his former employer's door (if they have time).

Is this a statuatory employee? Is the W-2 box checked showing as such?

In you RIA federal Tax Handbook, check out Paragraph 3020. The company has the responsibility to withhold, and they are the ones that will be hit with the penalties.

In this case, which is better for the client? He can repay the SS that wasn't withheld, or have it imputed. So he pays $200 a week, or he pays tax on the equivilent amount. My recommendation is to sign and get it over with. If he is not going to continue with the company, he can also fill out a worker classification request which will bring the IRS to his former employer's door (if they have time).

He or his tax return preparer should have noticed that why there is no SS amount withheld. I do not understand why this person waited for such a long time. I think "GQ" is not providing the full/correct story. And as Actionbsns has mentioned, this fellow has not fill out profile, so we do not know who this person reall is!Inagpurwala 17:57, 11 December 2007 (CST)