Ethical/logistical dilemma

wisteria
Thu, 03 Aug 2006 01:54:31 +0000

“I would suggest your D just ask the owner what he is doing. He might think he is doing your D a favor by paying her under the table. Saving her the trouble of filing taxes. Since he asked for documentation for hiring her it might be possible that he had good intention’s but is not a great businessman and did not get around to setting her up in his payroll.”

This is what hubby and I are hoping. This is a good man who we’ve known for years. It’s a very small ice cream parlor and for the last month they’ve had nightmarish problems with power outages (they make their own ice cream, so temperature continuity is really, really important), so my husband thinks we should give him the benefit of the doubt and talk to him. Obviously, my daughter is the employee, but this is important enough that my husband wants to speak with the owner himself.



I definitely agree that the right way to handle this is for your family to approach the employer in a positive, constructive spirit of “Of course, we understand that you’ve been very busy but we REALLY need to get this straightened out properly because it’s in everyone’s best interest to do the right thing.”

From the facts stated, it looks pretty clear that your daughter’s only obligation is HER SHARE of the FICA tax, 7.65%, which should have been withheld by the employer. (She is NOT self-employed, so she does not owe the entire 15.3% that some posters above have been mentioning.)

She should say that she want to refund to him the money which should have been withheld back to the employer, so that he can remit the correct amount to the IRS.

If your husband and daughter approach him in a diplomatic and non-accusatory way, with the clear, implicit but firm, assumption that of course he will remit the money to the IRS, it will be easier all around.

Your daughter should certainly prepare an itemized receipt for him to sign when she refunds the money that should have been withheld. It may be face-saving to explain that she needs that documentation for financial aid records, and you should also make clear that she will need a W-2 next January, in part because the college financial aid office require it.

It would be best for your daughter to repay the money that should have been withheld by writing a check to her employer, because then she has yet another record of it.

Once he has the money that should have been withheld for her share of the FICA (and possibly any state taxes involved–I don’t know your state tax situation), she is entirely in the clear.

If he doesn’t remit to the government, there is absolutely no violation on her part. (Consider the parallel situation of someone who purchases an item and pays sales tax, but the merchant doesn’t remit it. She is guilty of nothing.)

As another poster pointed out, there are, unfortunately, many unscrupulous employers who DO withhold, but don’t send the money to the IRS, and their unwitting employees don’t know what’s going on until they want to file their taxes the following year and don’t get a W-2. Basically, they wind up filing without a W-2, based on income reconstructed from pay records, and then the IRS goes after the employer, NOT the employee.

So really, straightening things out from your daughter’s end is very simple–just figure out what the withholding should have been, refund it to the employer, and have him straighten things out with the IRS.