Employer Taxes Deducted from Employee Pay

Sounds like your employer is an ideal candidate for appointment to the post of Secretary of the Treasury.

No, it's not right and it is not expected. (Just in my amateur opinion, I am not a tax or legal professional.) I have no idea if it's illegal or simply on the edge, but it is not remotely the usual thing to do.

Steve

If Emily D Woods is your real name, you could have taken steps to be a bit more "semi-anonymous"

I would want to see each employee's employment contract or similar documentation to see if this might be legit.

wrote

This isn't normal in a straight hourly rate job. I have seen it (or something like it) in commission type positions to account for the cost to the employer. Basically it's a method to push the cost of employment (taxes and benefits) to the employee.

The only time it's illegal is if the actual hourly rate drops below the minimum wage rate. Otherwise it's an issue between the employee and the employer.

The employer should have - and be able to - fully explain it to the employee or anyone else that asks, like someone from the labor board.

So basically it looks like the employer tells the potential employee they are making $8 an hour when the gross is closer to $6.95 an hour. Hardly ethical on the employer's part to keep it a secret from his employees.

Thank you for pointing out the obvious. That's why I added the "semi-" ... this is the only account I have set up for group posting and my full name is in my email address anyway. What I actually meant was I wanted to get some advice from anonymous individuals, people I don't know personally.

Ouch. I am not a lawyer, but this seems screamingly obvious.

It looks like you are going to have to choose between being unemployed or being part of at least a wage and hours violation. I hope you have some proof that this system was devised and implemented by your boss, otherwise he could end up blaming you for it.

Of course the term "self-employement taxes" is meaningless in this context. If the workers are self employed, they would pay their own self-employment taxes, not the company. Of course as you say they are not self employed, so this is just the employer cheating the employees out of their wages.

If you are not going to report this yourself (to the State and Federal departments of labor) you need to stay out of the discussions with the employees yourself, because when things get ugly, you don't want to be the target of either the authorities or the employees wrath.

It doesn't seem to be strictly illegal to me, either.

As long as the employee agrees, that is. If the employer is doing this without the employee's knowledge, to me it seems like theft.

Stu

The other replies have already told you that this is, as you suspected, neither kosher nor honest. I would add that it is also not legal. All states have departments of labor, industrial relations, or sometimes called "labor boards" which would be very interested to find out what's going on. Contact with your state's office can be done anonymously and without fear of retribution. After all, who's to say which one (or more) of total employees actually did "snitch".

On the other side of the coin, it is legal to "gross up" an employee's pay if he's an independent contractor to allow for him to pay his own self employment taxes. This was the case with the current nominee for Sec of Treasury when he worked for the IMF. He benefited from the grossed up amount, but reneged on actually paying his self employment taxes. Imagine that! I'm still shaking my head.

ChEAr$, Harlan Lunsford, EA n LA

The gross up is only for estimated income taxes. They consider the S/E tax a retirement investment. (It's S/E tax rather than just employee portion by treaty.)

Just want to keep all the facts squeaky clean, since I think he should be thrown under the bus before God gets the news. My opinion is born of 25 years of watching IRS employees put through hell because they missed a 1099 that didn't affect their tax.

In this case however, his pay did include an allowance for se taxes. See:

ACtually that whole article is good reading, esp the part where he got a written opinion from "his accountant" saying he wasn't liable.

ChEAr$, Harlan

What he means is that he is treating his employees as though they were self-employed and had to pay both sides of FICA and Medicare. However, unless the rules have changed, the self-employed do not pay FUTA and SUTA. It's people like him who give gonifs a bad name.

Dick

You got that right Phil! The designated Sec of Treasurey should step down!

Phil, I understand your animus. However, how the IRS deals its with its own employees has really nothing to do with whether an individual is qualified for a cabinet post or more specifically, Secretary of the Treasury.

My personal belief is that underpayment of taxes does not by itself disqualify anyone from such a position unless it can be shown there was tax evasion (fraudulent and willful underpayment of taxes).

IMO, the perception that he lacked the integrity to timely meet his tax reporting and paying responsibilities hinders his ability to lead and represent Treasury Department employees in meeting their assigned missions, and to inspire the confidence of American taxpayers in this time of financial crisis.

I'll be as straight forward as I can be - this is as illegal as I've ever seen or heard of.

The employer's share of FICA and the related unemployment taxes are just that - THE EMPLOYER'S SHARE. There are a few jurisdictions - NJ comes to mind - that allow employees to pay into a supplemental unemployment plan, but that is a discussion for a different day.

What your boss is doing is illegal - he is stealing from the employees, plain and simple. I'd be surprised if anyone could show anything substantive that proves otherwise.

The trap for you is this - you may be complicit at worst and a scapegoat at best. WHEN (not if) one of these employees catches on and files a wage and labor dispute with your state's wage and labor board and your company gets investigated heads will roll. In all likeliehood it will probably be yours. I'd bet you dollars to donuts that your boss has covered his tracks such that these "adjustments" look like they are being done by you and you alone.

My advice to you is simple, but will no doubt be hard to swallow - so sit down and hold on:

Find a local employment attorney, make an appointment and pay them out of your own pocket (I know you wont' like that part, but it is time to cover your backside), explain the situation to them just as you have to us, SHOW them whatever documentation you have to support what you're doing AND WHY - include notes from your boss instructing you to do this. And get a written opinion from the attorney. Expect to pay several hundred dollars for this - but trust me it will be worth its weight in gold.

Then ask the attorney for advice on what you should do AND GET THAT IN WRITING ALSO. Then follow that advice to the letter.

Good luck, Gene E. Utterback, EA, RFC, ABA

[ Secretary of the Treasury ]

The facts are Geithner had self-employment revenue that he did not report. Further when an audit determined (as was obvious) it should have been reported, he stalled on taking corrective action for years not covered by the audit.

As a self employed person who has reported every penny of my self-employment revenue for many years, I am offended by Geithner's appointment. You do not "accidentally" not report revenue. You are required to keep track of your revenue if you are self-employed. It's probably the single most important record-keeping and reporting requirement there is. And common sense says that a person knows when they have revenue, as they get a check or the money otherwise appears in their bank account, after having engaged in activity expected to generate revenue. How could a competent person be unaware of it? It may not be provable fraud/evasion -- that can only be determined by a court -- but based on what is publically known it can comfortably be said it was not proper.

Steve

I am inspired by the fact that even guys like this find taxes quite complex, and that he availed himself of the statute of limitations for his first couple of tax years in question.

Let's be clear here. He did report the income, but he reported it as ~not~ subject to SE tax. So it's more of an improper reporting / misclassification issue than anything else.

All agreed that he should have taken corrective measures back when it first became clear as to the tax treatment of that income.

He most likely didn't see it as being self-employed. After all, he was treated as an employee by that entity, not as a self-employed "contractor".

given the problem was widespread, it seems there was much misunderstanding. He wasn't really self employed for one thing. And, if he was simply mistaken, the earlier years not covered by the audit were not covered because the statute of limitations had passed. If the IRS thought they could prove evasion, thus overcoming the statute of limitations, they certainly could have done so.

Thanks. I wonder how you do that -- put it under "miscellaneous income" on the 1040 rather than on Schedule C? Seems like you'd have to do some sort of contortion (or whoever prepared the return would), to end up in such a spot.

Steve