The situation can get complicated if you are working for a very small employer. Its both a Federal and a State issue. I'm in California, so my state info applies here; obviously others may be somewhat different.
I had a friend that this happened to last year working for a small company - 5 employees, minority-owned. The owner had not filed any paperwork with the state or city to show that he was a business. He did not pay any of the required payroll taxes. He withheld money from employees pay, but didn't do any of the calculations correctly. He didn't pay social security.
When my friend came to me for help (when his taxes were due for the year) -- of course, no W2, we reported the situation to the Franchise Tax Board and the IRS. Neither took any action that we are aware of, even now a couple of months later.
We prepared an estimated W2 for the money that he actually received, so that the income was reported and he was protected from prosecution. (His income vs deductible expenses was quite low, so taxes were minimal).
Twinkie is right that you should contact the IRS and do it right away. Be advised that they will want as much information as you can provide including as much as you can in whatever documentation you can lay your hands on. It can take the IRS a long time to take action on a verbal complaint with no backup. Also, I would recommend that you contact the applicable state agencies. Be ready for them to demand paperwork also. If you think you can give them an anonomous phone call, or even one in which you fully identify yourself, and have them jump on the problem to resolve it, be ready for a little frustration.
Hope this helps and that for you, it won't be as difficult as I fear. Good luck.
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