Employer has undocumented worker. The worker quits and they have a dispute about wages and worker sues. They settle. The worker has obtained a TIN, but still no visa that allows him to work, as far as I'm aware.
When issuing payment, should the employer take regular withholding? Or should she do backup withholding? Or is there something I'm missing?
Thanks.
OK, I found the answer. Publication 515 - straight 30% backup withholding.
Probably the wrong Pub. That Pub is for NRAs. It is highly likely you are dealing with unlawfuls who pass the substantial presence test and are treated as resident aliens for tax purposes. These workers were employed using a false social security number. If I was the employer, I would issue a W-2 using that same social security number and withhold income tax and payroll taxes according to the normal wage withholding table. The unlawful, is required to file tax returns. This would entail filing the 1040 using the ITIN. The software typically has a place on the W-2 that allows you to override the ITIN that has been populated on the W-2. In this manner, the unlawful will get credit for any withholding. If the unlawful was filing a paper return, then attaching a copy of the W-2 to the tax return would accomplish the same thing.
If the unlawful is not filing tax returns, that is a separate issue.
Thanks.
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