My employer is not withholding taxes

To the best of my knowledge if you're an employee the employer pays the FICA, unemployment, WC, etc. And you get a W-2.

I don't understand how/why you're an employee. The "rules" for being a 1099 (independent contractor) are very stringent. You and your employer can't just unilaterally decide it's a good idea so I'm confused here.

You are being employed as independent contractor. You will get 1099-misc and must take care of your own taxes. Read: Your U.S. Tax Return: W2 vs 1099-Misc: Employee vs Independent Contractor.

No you are not hired as a employee, you are a independent contractor.

And you need to be putting back 30 to 40 percent of your pay for taxes depending on your deductions.
You are going to pay 7.5 percent more taxes, since as a employee the company pays matching money on the social security.
Also you will not be covered under unemployment, so if they fire you, there will be no money to collect

BigMarketFan,

Everyone is making good points here. The issue is are you or are you not an independent contractor.

IF you are not an employee, then you are an independent contraction and effectively your own employer. As such, you are responsible for paying not only the employEE portion of your taxes, but also the employER portion of taxes. At minimum, you will need to put 15.3% of the gross amount you are being paid to cover your self-employment taxes. Over and above that, you should estimate your federal and state income tax rates for 2009, in order to put aside your income taxes that will be due (Gross wages x 92.35% x income tax rate). People who are responsible for making estimated taxes payments pay 25% of estimated annual taxes on the 15th of April, June, September, and January. (Yes, the January date is in the following year.)

IF you are NOT an independent contractor, your employer does not get to get around his/her obligation to properly withhold and pay the appropriate taxes. May I suggest that you diplomatically seek to clarify the matter with your “employer”? See if the information in Publication 15-A is helpful to you: http://www.irs.gov/pub/irs-pdf/p15a.pdf

Please let us all know if this is not clear.

I am currently working for a new company as a commission salesperson. We all have just been told that they will not be taking taxes out of our paychecks. We most definitely are not independent contractors as defined by the IRS. The company provides an office, pays for leads, tells us what time to be there and when we can leave, we cannot hire our own employees. They also do not pay any minimum hourly wage, just strictly commission. There is nothing that we can legally deduct as business expenses as the company pays for everything including sales materials, even down to our ink pens.
I believe they just don't want to pay Social Security or workmens comp. My main question would be what recourse do we have? If I file the form SS-8 and it is proven that we are employees, does the company have to cough up the taxes or are we still liable for all of the taxes?

To all who have posted, you have made good points, but have ignored the basic issue: are these people REALLY independent contractors or are they employees who are being shafted by their employer?

The answer is the latter, pure and simple. The employer has to pay 7.65% of the employee's salary in FICA (Social Security and Medicare) taxes PLUS unemployment taxes (about 1-2%) plus workmen's compensation plus, in some states, mandated health coverage. Additionally, to remain competitive in hiring, some type of pension plan is also added. Add to that the cost of administering these additional costs with a payroll department or outsourced to a separate company, and you have a decent picture of the issue.

These costs add as much as 100% to the costs of employing someone as a W-2 employee, something avoided by simply designating a person as an independent contractor, while retaining the controls that exist to make sure the "contractor" does what an employee does.

This obviously illegal process CAN be challenged, either by contacting the IRS and requesting a audit of the employer's accounts or submitting paperwork with their annual return that alerts the IRS that this abuse is happening.

The only problem with that procedure is that it is a guaranteed, full-proof way to get FIRED! You are, after all, identifying an illegal activity to the IRS, and no employer wants to draw ANY attention from the IRS. If the employer DOES draw that attention, you can be sure he/she WILL find out who turned him in.

Given the current economic reality of double-digit unemployment and having anywhere from 5 to 15 unemployed persons waiting to fill your vacated position, I doubt that you have much choice but to put up with it until you find a better job with some other employer.

Thank you very much for answering my question. I do realize that turning them in would get all of us fired, there are approximately 20 employees and all of us are concerned about this. When we were hired we were told that taxes would be taken out, and we all filled out our W-2's. Then about five weeks into the job, we have been told that they will not take taxes out and we had to fill out the forms for 1099's.
Yes, you are correct, they are plenty of other people willing to take our jobs. So, in essence, we all have to put up with this. Pretty sad. What makes it even worse is that none of us have absolutely anything that can be written off as business expenses to help reduce our tax liability as the company pays for everything.

Well, you have not really described what it is you do.
You are either a non statutory employee in which case these rules apply:
Statutory Nonemployees

Or you are a statutory employee in which case these rules apply:
Statutory Employees

For far greater detail and examples see:
http://www.irs.gov/pub/irs-pdf/p15a.pdf

Chapter 2.

I wouldn't worry too much about being fired. Your employer will have plenty to occupy his time if it turns out he has been avoiding paying the Employment taxes the IRS believes he owes.