Edited to add that we're not looking for any litigation here, but I do think there is value in knowing where taxes, deductions, and admin expenses are going. I'm simply trying to understand.
My husband has worked full-time for the same company for over 12 years. He is a W-2 employee and is paid 100% commission. He is NOT a contract or independent worker.
His half of FICA is deducted from every paycheck, but for the employer's half, they deduct their 7.65% from his commission and categorize it as an "administrative expense". So the full 15.3% is actually paid out of his total wages. I'm 100% positive on these facts.
We're in Alabama. Is this even legal? 7.65% of his wages over 12 years is not an insignificant amount. They have always dodged questions about this and it gets brushed off. My husband has been afraid to rock the boat.
It adds up to a life-changing amount of money. It just doesn't seem legal—but maybe they are sneaking by through some sort of loophole. We've talked casually to many accountants and even tax attorneys and all of them say they have never seen anything like that before.
I would love to know more. And remain anonymous!
Husband has been paying full 15.3% FICA for 12 years
byu/GraphicDesignMom intax
Posted by GraphicDesignMom
21 Comments
Do your best to get it in writing that they’re deducting this for employer’s portion of fica taxes. I can’t tell you about the legality part, but better to have proof down the line during a possible lawsuit.
That seems suspicious. But I’m sure his employer has it figured out. Is the 7.65% worth him losing his job? My suggestion is have make sure his account at social security is accurate and let this issue go.
This is 10000000% illegal and a MASSIVE violation of federal law. You need to get this in writing somehow they are doing this and consult a lawyer IMMEDIATELY! An employer is REQUIRED by federal law to pay half of FICA and that half cannot be deducted from your pay check.
If this is actually happening and you can prove it, your husbands company is in for a world of shit they don’t want to deal with legally and with the IRS.
Sounds like he’s classified as a statutory employee, my understanding is for statutory employees, the employer does withhold and remit the 7.65% employer share but not federal income tax.
https://www.adp.com/resources/articles-and-insights/articles/s/statutory-employee.aspx
Does your husband file a Schedule C with his tax return?
Is he having federal income tax withheld from his wages?
100% commission based means he’s an IC. He’s taxed correctly
How is a w2 employee only paid by commission?
Every employee is budgeted in company budgets at the total cost per employee, all loaded with benefits, taxes, etc.
Fact that company has a policy of an arbitrary amount and then offsetting the ’employee’ costs to that is not wrong to get a net number is what every company in America does. Some just may be more explicit than others in doing so.
Is your husband a statutory employee?
https://www.irs.gov/businesses/small-businesses-self-employed/statutory-employees
Go back and check his w-2 and see if they have him classified as a “statutory employee”. Some 100% commissioned payed employees are classified as such. However, if that is in fact the case, the employer is still required to pay the employer share of FICA taxes…
I would contact the Alabama labor board to find an answer: [https://www.nlrb.gov/about-nlrb/who-we-are/regional-offices](https://www.nlrb.gov/about-nlrb/who-we-are/regional-offices)
You can check his commission agreement to see what it says. I’m guessing it says that the commission formula will include a 7.65% deduction for administrative expenses.
Have you talked to a lawyer or CPA experienced in this area?
Can you post a photo of a pay stub? Obviously black out personal info.
If he makes 10k of commissions, how much of that do they report as his taxable income? If they report 10k of income, and then take 7.65% back for their taxes, but leave him paying tax on that amount. that is wrong.
If they take 7.65% out of that 10k, and only report that his taxable compensation was 9235, then that is fine. It’s just that his pay is commissions less administrative costs. Not that he’s paying their half of fica taxes.
Look, this is just the same thing as mandatory “service charges” on restaurant or hotel bills. The division of FICA and Medicare withholding into two parts is purely accounting gimmickry. It has a small effect on one’s income tax (in your favor). Bottom, line, one can argue the employer pays for it all (since they pay the employee), or that the employee pays it all (since presumably, the employer would be willing to pay everyone 7.65% more if the IRS wasn’t extracting it for themselves).
In OP’s case, husband’s employer sounds like a dumbass, who may well stumble into federal crimes. If they’re so butt-hurt about paying payroll taxes, then they should reduce the commission rate, not fuck around with bogus (possibly illegal) deductions.
How much does he make a year. Social secure tax stops at 176k
Is he a statutory employee?
He still owes FICA on his commissions so the 7.65% would cover that. Are you saying the 7.65% administrative expense is in addition to a FICA line item deduction?
Is he reporting his w-2 on a Schedule C?
I’d be careful here, because if you push too hard and they retaliate, it could get messy. But from everything you describe, the employer is pocketing money they’re required to pay.
You might want to talk quietly to the IRS or Department of Labor. They take this stuff very seriously
I’m just going to make up round numbers. His monthly salary is 5K and his monthly commission is 5K. That’s a total of $60,000 salary and $60,000 commission. His total FICA for each is $3720 for each for a total of $7440. Are you saying he is paying $11160?