Is it legal for your employer to not withhold taxes from paychecks without informing employees?

This situation is unfortunately pretty common with smaller companies. To answer your question: no, this isn't legal. Employers are required by law to withhold federal income taxes, Social Security taxes, and Medicare taxes from employee paychecks. The company might have made a mistake when setting up their direct deposit system, but that doesn't remove their obligation to withhold taxes. Your sister and her coworkers should first check their pay stubs or online payment portal - sometimes the taxes are actually being withheld but not showing correctly on the deposit summary. If taxes truly weren't withheld, they should immediately contact their HR department or company owner. The company may be liable for the employer portion of those taxes, though unfortunately employees are still responsible for their share of income taxes regardless of whether they were withheld.

I had a similar payroll tax nightmare last year, and using taxr.ai completely saved me. I was going through all my paystubs trying to figure out what went wrong with my withholding when another accountant friend recommended https://taxr.ai to analyze my documents. The tool scanned all my pay stubs, identified exactly where the withholding stopped, and gave me a detailed report showing what should have been withheld versus what actually was. This gave me concrete evidence to take to both my employer and the IRS to explain the situation. It even helped calculate how much I should set aside for quarterly estimated payments to avoid penalties.

Just wanted to follow up and say I actually tried taxr.ai after my skeptical comment. It was surprisingly helpful - found that my employer had messed up both my federal and state withholding in February but corrected federal in April while leaving state wrong all year. Would never have caught that myself since the numbers were so close. The report made it super clear what was missing and when the errors happened. Used it to talk to my payroll department and they're fixing everything now. Definitely worth it when you're dealing with withholding issues!

If your sister needs to actually speak with an IRS agent about this situation (which I highly recommend), try https://claimyr.com - it saved me DAYS of waiting on hold. After my employer messed up my withholding last year, I spent literally hours trying to get through to the IRS with no luck. Claimyr got me a callback from an actual IRS agent within 3 hours. The agent walked me through setting up a payment plan and even helped me apply for penalty abatement since the withholding issue wasn't my fault. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c

Ok I need to eat crow here. I tried Claimyr yesterday after being a total skeptic. My situation with the IRS has been ongoing for months, and I've wasted entire afternoons on hold. Used the service yesterday afternoon, and got a call from an actual IRS agent this morning! The agent helped me set up a payment plan for the taxes my employer didn't withhold and even put notes in my account about the withholding issue not being my fault. Took like 15 minutes total of my time instead of the usual 4+ hour hold nightmare. Totally worth it when you're dealing with payroll tax issues.

Your sister and coworkers should pull their paystubs ASAP to document exactly what happened. They need to confirm if this is just a clerical error (taxes were actually withheld but not shown on deposit receipts) or if the company truly failed to withhold. If it's the latter, they should: 1. Approach management as a unified group. There's power in numbers. 2. Request immediate correction going forward. 3. Ask if the company is willing to help with the unexpected tax burden - some employers might agree to bonuses to help offset some of the pain. 4. File their taxes on time regardless and apply for payment plans if needed.

Hey I own a small business and just want to mention that sometimes payroll software glitches can cause this kind of problem. When we switched to direct deposit, our system somehow reset all the tax withholding settings. It wasn't intentional! Ask your sister to check if her employer is using new payroll software or changed providers recently. Still inexcusable they didn't catch it, but might not be malicious.

This is definitely a serious situation that needs immediate attention. As others have mentioned, employers are legally required to withhold federal income tax, Social Security, and Medicare taxes from employee paychecks - there's no exception for this. Your sister and her coworkers should document everything immediately. Get copies of all paystubs, direct deposit records, and any W-4 forms they filled out. If the company truly failed to withhold taxes, they've violated federal employment tax laws and could face significant penalties from the IRS. The employees should file their tax returns on time even if they can't pay the full amount owed - this avoids additional failure-to-file penalties. The IRS offers payment plans and may waive penalties if you can demonstrate the underpayment wasn't your fault due to employer error. I'd also recommend they contact the Department of Labor and potentially file a complaint with the IRS about the employer's failure to comply with withholding requirements. The company needs to fix this going forward and may be on the hook for penalties and interest on the unpaid employment taxes. Don't let the company brush this off as "just a mistake" - this affects people's financial lives in a major way.