Whether you are paid hourly or a salaried wage, your employer or his representative is supposed to withhold taxes from your paycheck. The withheld money is then transferred to the appropriate tax agency, where it will be used to fund state and local governments, as well as social protection agencies such as Social Security and Medicare. Failure to pay those taxes can result in serious repercussions, including imprisonment.
Independent Contractor Vs. Employee
Your employer might not have paid your taxes because you might not be considered an employee. The Internal Revenue Service might decide that you are self-employed or an independent contractor. There are a series of questions that need to be answered in order to determine your filing status. Generally, if you are required to work certain hours and have to follow the instructions provided by the person who pays you, you are an employee.
If you are an employee, it is the responsibility of the employer to take out those taxes. If they don't, you have the option of going to the IRS and turning them in. Doing this will prevent you from getting in trouble for tax non-payment in the future.
Responsibility of Business Owner
It is the responsibility of the business owner to make sure taxes are withheld. When your employer was given the authority to operate a business, they became a withholding agent for the U.S. government. One of their duties was to withhold taxes during the payment process.
The taxes are held for the Internal Revenue Service and periodically paid to the government, based on a schedule worked out with the business owner. However, the IRS will come to you to get the taxes you owe, regardless of whether your employer should have withheld them.
You can notify the IRS about the situation by filling out an IRS Form SS-8, which notifies your employer about withholding the proper taxes. There is no way to remain anonymous, however, and your employer will know you went to the IRS.
Read More: W-2 Forms: What It Is, Who Gets One & How It Works
Your employer might not have paid your taxes because you might not be considered an employee. The Internal Revenue Service might decide that you are self-employed or an independent contractor.
Types of Taxes
There are several kinds of taxes an employer might fail to pay. Income tax might not be withheld, of course, but employers also are required to pay Social Security taxes on employees, as well as Medicare taxes. Failure to do so can incur penalties that include both fines and possible imprisonment. Employers can also get penalized for filing the withheld taxes late.
If your employer did not file Social Security and Medicare taxes, you are not responsible for those taxes. The employer will have to pay the back taxes owed, as well as any fines and penalties.
Read More: List of Types of Taxes
State Income Taxes
Businesses are required to withhold more than federal taxes in some states. Connecticut, for example, also requires state taxes to be withheld from employees. If a business doesn’t file the necessary tax withholding paperwork and pay the state taxes, the business owner can be charged with a criminal offense and have to pay a fine or face imprisonment. The employee will not be held liable.
Read More: Which States Don't Have State Income Taxes?
Liability of the Employee
In most cases, the employee is not going to be held liable for unpaid taxes. The business owner will usually be targeted. In some cases, others in management might also be held responsible. Even if a company is designated a corporation or a limited liability company, the people in charge will not be exempt from having assets seized for unpaid taxes, since failure to pay taxes is one of the few areas personal asset protection is denied.