Just got a letter from my employer that I am to make FICA Taxes repayment as from 2005 to 2009. Are they allowed as per the Tax Pub 15 to ask me to repay from 2005 until now or just ask for 2009 only? Also since it was the Corps fault are they allowed to charge an interest rate forwards the repayment?

What? Your employer didn't withhold FICA for 4 years and now wants YOU to pay it? Were you a 1099 employee?

The debt is owed IRS, not the employer so I don't understand the other half of the question.

Per the discussion here:
https://www.askmehelpdesk.com/taxes/fica-taxes-not-withheld-employer-50077-2.html
Your employer can not require you to pay FICA taxes going back 6 years. All they can do is require you to make up the 2010 portion of under-withheld taxes. The employer (not you) is responsible to pay up any taxes that they failed to withhold up through the end of 2009. See Pub 15, page 30, "Collecting underwithheld taxes from employees" - http://www.irs.gov/pub/irs-pdf/p15.pdf
And no -they can not require you to pay interest.

My answer was posted to the link ebaines cites, but his citation of Pub 15 is insightful; the exact extract is below; note the sentence in bold blue:

If you withheld no income, social security, or Medicare taxes or less than the correct amount from an employee's wages, you can make it up from later pay to that employee. But you are the one who owes the underpayment. Reimbursement is a matter for settlement between you and the employee. Underwithheld income tax must be recovered from the employee on or before the last day of the calendar year.

As cited in my earlier email, the only LEGAL recourse your employer has to recover the FICA taxes for 2005 through 2009 is to terminate your employment if you do not cooperate. Given that they want FIVE years worth of back taxes, it may be "worth it" to lose the job rather than paying that amount of money back to the employer.

Atlanta, the bold highlite you have is not for his taxes he's talking about. His taxes are FICA taxes, i.e. SS tax and Medicare taxes. Your bold highlite refers only to federal "income taxes".

When you read this sentence,. "If you withheld no income, social security, or Medicare taxes or less than the correct amount from an employee’s wages..." They're talking about "three" taxes, 1, Income tax, 2. SS tax, and 3. Medicare Tax. The employer can't recover the "Income Tax" that was supposed to have been withheld after the year is over, because it doesn't make any sense to do so. If the employer made a mistake and did not withhold enough, its too late the yr is over. Actually it's the employees disadvantage as he may owe on that yrs taxes, because his FITW is too low. Versus his SS tax, which doesn't go on the return.

Conversely, the employer is not required to pay to the government underwithheld "Income Taxes", at any time. These are taxes are out of the employees own pay as he earned the wages and held toward his FITW at year-end. IF not enough was withheld the employee the employee is just underwithheld for the year and has little FITW to put on his tax return due. Therefore, there is no way for the employer to make-up underwithheld FITW, or "Income Taxes", after the year is over, and the W-2 is created.

FICA taxes on the other hand are different. As stated in your quote, "can be collected from the employee after the year is over, as stated in Pub 15.,"If you withheld no income, social security, or Medicare taxes or less than the correct amount from an employees wages, you can make it up from later pay to that employee." so the employer can recover underwithheld FICA taxes, but not " so the employer can recover underwithheld FICA taxes, but not ". No year limitation is mentioned at all. Certainly, the employer is responsible for paying it the government, but the government allows him to get reimbusement from the employee. Which is what that passage is stating.

Finally, the IRS pub 15 states reimbursement is a matter between the employer and ee, this does not preclude interest from being charged as part of that reimburesment. Its not stated
This is somewhat similar to if the employer can charge for resending W-2s the employee lost, and the employer can charge for replacing a W-2. Its not an IRS issue.

teusi1, I asssume you are beyond your F-1 or similar visa status years, during which you would be exempt from FICA taxes per PUB 519.

Mack:

You are correct about the income tax citation.

However, in conversations I have had with the IRS, it is their position that the employer cannot LEGALLY attempt to recover FICA taxes that were not withheld in the calendar year. The date they have cited as the LAST date they can recover such NON-withheld taxes is January 31 of the following calendar year.

I have advised multiple clients on this issue, and more than one client have in fact quit their jobs rather than pay back such a large tax debt. In every case, the employer did NOT attempt to sue the client for the back tax bill, probably because their attorney advised them that they had not legal grounds for such a suit.

This is more of a LEGAL issue than a tax issue, and I am NOT an attorney, but I believe that my guidance in this matter (that the employer has NO LEGAL STANDING to collect FICA that were not withheld in past years) IS legally accurate.

Interesting situation... Did you resolve with your employer yet?

Hi, I am in a similar situation and desperately looking for concrete answers. Specifically with regard to the statements:

"This is more of a LEGAL issue than a tax issue, and I am NOT an attorney, but I believe that my guidance in this matter (that the employer has NO LEGAL STANDING to collect FICA that were not withheld in past years) IS legally accurate."

"However, in conversations I have had with the IRS, it is their position that the employer cannot LEGALLY attempt to recover FICA taxes that were not withheld in the calendar year. The date they have cited as the LAST date they can recover such NON-withheld taxes is January 31 of the following calendar year."

Could AtlantaTaxExpert of anyone else please cite some kind of documentation that states this? Anything that I can use to strengthen my case? Because all I can see referring to the calendar year limit is the "Underwithheld income tax must be recovered from the employee on or before the last day of the calendar year" and that is income tax not FICA.

Thanks in advance...

OccomRazor:

See my 9 Augsut 2010 post. Though the citation specifically addresses income tax, conversations with the IRS state that they hold the same limitation for the FICA tax.


Again, this circumstance is worth a visit to a tax attorney who can represent you with your employer and let them know that they essentially have NO legal ground to stand on when it comes to collecting back taxes prior to 1 January 2010.

Thanks so much for the quick reply... I don't doubt what you say, I'm no expert, but it's hard to argue "I read this on the internet" if you see what I mean. Just now I did find some interesting IRS documentation relating to statute of limitations that would seem to contradict what you say, but honestly I don't know what to make of it all, but perhaps you can. See these links...
http://www.irs.gov/irm/part25/irm_25-006-022-cont01.html
http://www.irs.gov/irm/part4/irm_04-023-014.html#d0e255
http://www.irs.gov/irm/part4/irm_04-004-010.html#d0e217
My employer failed to withhold FICA for the last 5 years since I joined them. I am a dual-national working outside the US for a US employer which I told them but it didn't filter down to the relevant dept who didn't realise I was also US, and I had absolutely no idea about any of this stuff, so they didn't file W-2s nor deduct FICA... and so I am looking at a big bill if I have to pay the employee portion.

OccamRazor:

The URLs you provided provide guidance to IRS employees as to what must be done to pursue assessments both against the employer AND the employee when assessing FICA tax.

It IS possible for the IRS to go after the employee for back taxes owed under FICA, but they rarely do so because the employer has traditionally been held responsible for paying these taxes while collecting the employee's share from the employee's paycheck.

The citations also state that such assessments can go back to the statutory date for amending the Form 941, which is THREE years after the initial filing of the Form 941. Traditionally, the IRS only goes after the employee when they believe that the employee participated in some type of fraud to avoid paying the FICA taxes.

Clearly, that is NOT the case with you. The failure to withhold was an issue of ignorance on the part of the employer and you. If there is no fraud, the IRS cannot go back prior to 15 October 2007 (three years) to collect the FICA tax from you UNLESS you sign a Form SS-10 allowing them assess the tax for more than three years.

All that said, the key issue is whether the IRS intends to go after YOU for the back taxes. It is not clear whether the IRS has contacted you for these back taxes, or whether your employer is attempting to collect from you your "employee share".

If it is the employer, I still believe that he has NO legal standing to collect prior to 1 January 2010.

If it is the IRS, they cannot assess prior to 15 October 2007 with expressed written permission from you.

In EITHER case, the amount of money involved CLEARLY dictates that you need to get a tax attorney involved to represent your interests in this matter. It may cost you $500-to-$1,000 in legal fees, but he could easily save you TEN TIMES that amount in back taxes owed.

Well I just spent 90mins on the phone to the IRS helpline, going from the general tax issues unit, to Small Business unit, to Advanced Tax issues, to Employer issues (941-X) dept, to some Social Security unit, and back to the Advanced Tax issues unit. None of them could tell me the answer... sigh.
Your summary of the factual situation seems correct to me, particularly that there was no fraud, merely misunderstanding and ignorance by both employer and me.

> It is not clear whether the IRS has contacted you for these back taxes, or whether your employer is attempting to collect from you your "employee share".

IRS has not contacted me, though I will soon be starting the process of coming forward to file the back INCOME taxes (I had no initial liability as always under foreign income exclusion, but am aware there can still be penalties), filing back FBAR (foreign bank account declarations) forms, etc.

IRS has not contacted me about FICA, but employer is saying they will pay employer portion of FICA for last 3 years (statute of limitations), but that I have to pay the employee portion... which is where I am now.

I have already contacted a tax advisor (an enrolled agent) regarding the other issues, and they told me they thought I had to pay the employee portion of FICA, but it was during a relatively brief phone call and I'm not 100% convinced as to their answer.

Occam:

An enrolled agent is an excellent choice for the tax returns, but the payment of the back FICA taxes (as required by your employer, NOT the IRS) is, In my opinion, a matter requiring the skills of a tax attorney.

Also, give some careful consideration to simply quiting your job if your employer persists on (in my opinion ILLEGALLY) collecting this debt.

AtlantaTaxExpert, thanks so much for your detailed replies, they're much appreciated. I definitely do not want to quit this job. The employer hasn't "persisted" on collecting this "debt" yet, it's still in the relatively initial stages and I am just trying to ascertain the exact legal obligations. There is still plenty of goodwill between us and I think they will try to help me at least in some way. I don't think they have examined the legal aspects of this specific matter in detail yet, are just going on what they think is the situation, but that said they surely will investigate it soon as they are a big firm with much greater resources than I have.

That, of course, is your choice.

While the legal aspect of the repayment is, in my opinion, in YOUR favor, the ethical aspect of requiring your employer to pay BOTH sides of the FICA tax IS a consideration.

If you DO decide to make restitution, negotiate to have it done over several years under a payment plan so to less the impact over the long haul.

"While the legal aspect of the repayment is, in my opinion, in YOUR favor, the ethical aspect of requiring your employer to pay BOTH sides of the FICA tax IS a consideration."

That's true, and while I have taken it into consideration, I would still be very happy to find a way for them to pay both sides, so long as everything could remain relatively amicable. I'm hoping that they might offer to pay my side if they become aware that the actual obligation is on them, or at least come to some kind of partial payment agreement.

I am sure you will work it out.

I spoke to my employer, and they were not at all amenable to the idea of them paying prior year employee portion of FICA taxes, which if they stick to that position will leave me with a large bill (3 years prior + current year employee portions, approximately). I also spoke to the manager at the (very large) accounting firm that advises my employer, who seemed a smart and reasonable guy. He said he was unaware of any statute of limitations on the time when an employee is relieved of their FICA tax obligations to the employer, in cases where FICA was not originally withheld by the employer. He was aware of the IRS Publication 15 rule regarding end-of-year limit on employers deducting for income tax withholding corrections, but in his opinion there was nothing to state that such a rule also applied to FICA tax. So that's where I am...

Occam:

Understand something: The representative of the accountant firm represents your employer, NOT you, and thus has the legal obligation to look after your employer's interests. NOT yours. That being the case, he will probably not hesitate to LIE to you about whether there is a statute of limitations in order to trick or intimidate you to pay your half of the FICA tax, even though you may have no legal obligation to do so.

Given the amount of money involved, you REALLY need to get a tax attorney involved in these negotiations to represent YOUR interest in this matter.