I work for a small business and they do not have me on the "books" - meaning they are not paying pay roll taxes or deducting taxes from my paycheck. They pay me every two weeks by check. I'm worried now I have been here for a year and it's time to file my taxes. I do not have a W2 form with them and have finally asked them to put on their accounting and make everything legit. How do I file my taxes for this year? I made roughly about 21,000-22,000 last year. My wife says that we need to obtain a 1099 and will have to eat the loss and pay taxes - but I am not a private contractor with them, Iam their employee. The paperwork was just never filed/filled out properly. Also, they are recommending that she claim me as a dependent because she made a lot more than I did (by double) and we would state that I have made no money this year. She is refusing to do this because she says that is fraudulent and she is very worried about the paper trail. I'm worried as well and feel that my employer has put me into a very bad situation.

You are an independent employee and that is how you will pay taxes. There is no dishonesty on the part of your employer if you were paid by check. It's not like you were paid cash, under the table.

It took you a year to realize taxes were not being withheld?

You are not your wife's dependent.

Your wife is correct - your employer should provide you with a 1099 to document the amount they paid you. They have indeed put you in a bad situation - at the very least they are failing to pay social security and medicaire tax on your behalf, which means as a self-employed contractor you have to pay it double. You may also owe interest on under-witholding of income trax throughout the year. And as JKT noted, you are not a dependent of your spouse. You must file either as Married Filing Jointly or as Married Filing Separately.

Even if you do not get 1099-misc, you must report this income on schedule C or C-EZ (Form 1040). Then you put net income (or loss) on line 12 of Form 1040. This income is subject to SE tax at 15.3% (this is shown on line 57 of Form 1040).
Even though schedule C treats you as a self employed, which may not be correct for you, this is how you must report this income. Your U.S. Tax Return: Tax Filing by Self Employed Sole Proprietor or Independent Contractor

You will end up paying about 7.2% more taxes as compared to W-2 employee. The benefit is that if you have job related expenses, you can deduct it only as itemized deduction subject to 2% AGI limit.