Social Security Tax Audit by IRS

[saco]

Hi,

I have started working with my company (a big international company with +5,000 employees) under F-1 OPT and no social security and/or medicare tax deductions have been made, as it should be. However, 6 months after my hire, I switched to H-1B. I did not know it at the time, but know it now, that my company should have updated my files such that SS and medicare taxes should have been deducted from my paycheck. Well, they did not update my records and did not pay SS and medicare.

IRS, however, performed an audit of my company's tax records for the last 3 years and found out that no SS or medicare taxes have been deducted from my paycheck. Of course, my company did not pay their portion, either. Since IRS found this out and requested the money, my company paid them the entire balance with one check (including all company dues and my portion). After that my company contacted me and told me that they will deduct this money from my paycheck over a 3-year period. Suddenly, I started to pay for the SS and medicare taxes AND the taxes for the previous three years, which is a considerable income loss as you may imagine.

My question is, since updating my records was my company's responsibility, and I did not do anything wrong during this period, is it possible for me to argue that my company cannot ask me to pay the money they paid to IRS even though it was "my portion". More importantly, I will leave my company in two months and am afraid that they will withhold my earned vacation time (which is employee's time and should be paid to him/her when the employment ends) and 401K company shares to cover their expense. I am moving out of US and do not have a problem to go to the court for this issue, if there is hope to win the case.

I will appreciate all kind responses.

 

[littleadv]

My question is, since updating my records was my company's responsibility, and I did not do anything wrong during this period, is it possible for me to argue that my company cannot ask me to pay the money they paid to IRS even though it was "my portion". More importantly, I will leave my company in two months and am afraid that they will withhold my earned vacation time (which is employee's time and should be paid to him/her when the employment ends) and 401K company shares to cover their expense. I am moving out of US and do not have a problem to go to the court for this issue, if there is hope to win the case.

I will appreciate all kind responses.

You actually did something wrong - you didn't pay your taxes. If you did in fact pay your taxes directly to the IRS with your yearly tax return - you should argue that the company shouldn't have paid the money to begin with, but I'm guessing this is not the case for you. Paying taxes is your own personal responsibility. The employer withholds the taxes for you, but it is your job to verify, in the end of the year, that you did in fact pay all your taxes, and pay the portion not withheld with the tax return you file every year.

You should consult with a tax attorney as to whether the whole process was correct, but generally, if IRS discovered that you didn't pay taxes you would not only pay the balance, but also face some hefty fines and interest, which you might have avoided by the fact that it was discovered through the company audit, and not a personal audit.

 

[CalGreenCard]

You should consult with a tax attorney as to whether the whole process was correct, but generally, if IRS discovered that you didn't pay taxes you would not only pay the balance, but also face some hefty fines and interest, which you might have avoided by the fact that it was discovered through the company audit, and not a personal audit.

I'd recommend not so much a tax attorney but more an employment or consumer law attorney. It sounds like the tax obligations have been taken care of at this point--albeit late--plus the audit was of the employer, not the employee, so it is not clear that a tax attorney would have much to say at this point.

Essentially by paying the FICA taxes but not withholding them the employer has given the employee an advance against future wages, which is presently being withheld on a paycheck-by-paycheck basis. It would be worth knowing whether the OP ever signed an agreement with the employer acknowledging this as a valid debt and agreeing to the repayment terms. It would also be worth knowing whether the OP's employment agreement authorizes withholding of amounts owed to the employer from the final paycheck.

But state law--in whatever state the OP lives in--probably has something to say about when an employer can or cannot withhold an amount from an employee's paycheck--hence I'd recommend talking to an employment attorney.

The question also arises as to whether the OP would continue to owe money if nothing is withheld from the final paycheck, or the final paycheck isn't sufficient to cover the debt. Can this debt then be collected by other means?

I'd be about 99.9% sure, though, that the employer CAN'T go after money in a 401k plan. AFAIK there is no situation in which the vested balance of a 401k plan can be withdrawn without the employee's consent. This is worth verifying too but I don't see the employer being able to get at that money. Of course if the 401k plan includes matching employer contributions that haven't vested at the time of termination, the OP loses such contributions--but that is unrelated to the SSA matter.

Also you might want to verify with Social Security that the late payments (both employer/employee) were properly credited to the OP's SSA account. The SSA no longer provides free statements annually or on request (supposedly this will eventually be available online). However you can still get a certified record of earnings by filing SSA-7050 with Social Security and paying a small fee--and I'd recommend doing so.