Employers that do not withhold taxes from employee paychecks impact more than their own records. The employees in question are losing out on Social Security contributions and are still responsible for paying the taxes. According to the Internal Revenue Service, the employee and employer are equally responsible to be sure the taxes are withheld, reported and paid.
Every employer in the nation is responsible for withholding federal taxes from employee paychecks and sending the money to the government. Many states also have state income taxes that are withheld and sent to the state governments. Upon being hired employees are asked to fill out a W-4 form telling the employer how many dependents the employee is claiming. Using an IRS-provided chart, the employer determines how much money should be withheld from each check for taxes. In addition, Social Security contributions and other government required contributions are calculated. The money is removed, and the employee receives the balance with a stub detailing what has been withheld from her paycheck and why.
The employer maintains a tax account into which all withheld taxes are held. The funds are sent to the proper state and federal agencies each quarter. There are mandated forms to be filled out and sent in with the money. Within the first month of each new calendar year, the employer prepares W-2 forms detailing each employee's income and tax withholding information for the previous year. The W-2 is given to each employee to use when he files his tax returns.
An employer failing to withhold, report and submit employee taxes can be criminally charged. In addition, there are stiff financial penalties for not properly dealing with employee taxes. While the employee will not be penalized for the employer's failure to withhold taxes, a byproduct of having an employer who does not comply with the law is the loss of Social Security contributions. If the employee worked for many years at the company, the lack of Social Security contributions will impact the amount he receives upon retirement.
Discovering that your employer is not withholding taxes can be done by reading your paycheck stub. If taxes are being withheld, the stub will detail all deductions and what they were for. Seeing that that money is being withheld does not guarantee that it is being sent to the Internal Revenue Service and your state revenue agency. But it is a good indicator that your employer is complying with the law.
Contacting the Internal Revenue Service provides is one way to find out if the taxes being withheld are in fact being sent in. If you discover the taxes are not being withheld or not being sent in, speaking to your employer might resolve the issue. You also have the right to report your employer to the IRS and state revenue department.