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What Is Employment Tax Evasion?

Federal law requires employers to withhold federal income tax, Social Security and Medicare taxes from their employees' paychecks and send the money to the Internal Revenue Service (IRS). Federal and state laws also require businesses to pay an additional unemployment tax. An employer's failure to pay these taxes to the IRS is employment tax evasion.

How Do Employers Evade Taxes?

Employment tax evasion schemes can take a variety of forms.  Some of the more prevalent methods of evasion include pyramiding, employee leasing, paying employees in cash, filing false payroll tax returns and failing to file payroll tax returns: 

How Can Employees Prevent Employers Tax Schemes?

Employees should watch for employers engaging in fraudulent conduct when paying employees because the employees may suffer from the scheme by not being able to collect unemployment, social security, and medicare benefits. There are several ways an employee can determine whether an employer is paying taxes withheld from paychecks: 

If the employer is not withholding taxes from the employee, the employee is ultimately responsible for paying those taxes. The IRS urge employees to watch for and report any misconduct.

Can an Employee Be Held Liable for Employment Tax Evasion?

If an employer fails to pay employment taxes, and the IRS is unable to collect these taxes from the employer, the employee is ultimately responsible for his or her share of the federal income tax and Social Security and Medicare taxes. 

An employer's failure to report or pay taxes to the IRS ultimately hurts the employee, who may not be able to claim Social Security, Medicare or unemployment benefits in the future..

What Can I Do If I Am Accused of Tax Evasion?

If you have been accused of Tax Evasion or you are facing an audit, you should speak to a tax lawyer immediately to learn more about your rights, your defenses and the complicated legal system. If you are an employee suspecting a employer engaging in misconduct you may also benefit from contacting a lawyer to assist you in preventing the employer in future misconduct.

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Last Modified: 11-23-2015 04:15 PM PST

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