I am in US on F1 visa (student visa).
I am working here under OPT in a small company. When I started my employment, my friend had told me I do not have to pay social security and medicare taxes. I passed on this information to my employer.

Recently I realized that since I am in US for more than 5 years (and therefore considered resident for tax purposes), I in fact do have to pay social security and medicare taxes.

Till now my company did not withhold the amount for SS and medicare taxes.
Can I and my employer do anything before 31st to fix this situation and have minimum problems when filing tax returns for 2011 year? If yes, can you please guide what we have to do?

If it cannot be fixed right now then what we have do later to fix this problem.
For you reference, the total SS and Medicare withholding amount for my part is about $1200 (5.65% of salary) and for employer part it is $1530 (7.65% of salary).

All right, the FICA (Social Security and Medicare) taxes are NOT address on the annual income tax return in 99% of the cases. The only time Social Security tax is addressed on the annual income tax return is to refund the excess withholding of Social Security taxes if you earn MORE than $106,800 on two or more jobs and an excess amount of Social Security tax is withheld.

Go to the employer and explain the problem. If he chooses to correct the problem, he will pay all of the back taxes and then probably set up a payment plan for you to pay him back. This is the ONLY way you can fix this problem.

Thanks a lot for your help AtlantaTaxExpert.
I will inform the employer as you have suggested.

Glad to help!