Then there’s here, which claims their clients earned $730 Million in rewards:
So, fuck yes, the whistleblower reward does pay off!
There’s a older program, with much smaller rewards, but the rewards were completely anonymous. According to my Bro, they paid out quite often, but it took years and the amount was fairly small.
I’ve concluded it will be a lot of trouble for me to pursue this. I’d have to pay the taxes on the entire amount I earned, which would be fine if I win. Maybe when I have some time…
Yes, you will have to pay Income tax. But if you don’t fink them out, you’ll also have to pay Self-employment tax, aka Social Security aka Payroll taxes. In other words, your tax bill will double. And since the IRS moves very slowly, you’ll have to double all that again with interest & penalties.
Not quite double - you’d have to pay double social security (the 7.65 percent you should have had withheld, plus the 7.65 employer match). Your income tax would remain the same.
Depending on how much you earned, you might get slammed with a penalty for underwithholding your income tax, as well.
If the employer tries claiming you were an independent contractor, then you would have been expected to pay estimated taxes quarterly (including the Social Security).
Did the employer send you a 1099 for the year? or a W-2? Did you fill out a W-4 when you came onboard?
The safest approach, in my opinion, would be to total up all you earned last year, fill out a substitute W2 (http://www.irs.gov/newsroom/article/0,,id=106470,00.html) showing the correct amounts, with zero withheld, then rat the employer out to the IRS. And pay your share of the assorted taxes. Unfortunately, that is a challenge and a half - unless your earnings were just a few thousand, that kind of scratch is kind of hard to come up with. But there are payment plans.
Alternately declare it as self-employment income. Same tax hit (though higher social security).
But to me it doesn’t sound like you would reasonably be considered an independent contractor subject to 1099 / self-employment income.
If your total wages were below a certain threshold, the employer actually isn’t obligated to do the whole FICA / withholding thing, if I understand correctly. But it’s a small amount - something like 1000 a quarter.’
Are you still with that employer? Have you considered phoning them and asking them if they’ll be sending out the W2? I wouldn’t even mention the 1099 alternative!
Most dudes end up paying about a NET 15% Income tax, thus adding self-employment tax on top more or less doubles the net Federal tax bill. And SE tax is part of your overall Federal tax bill. The IRS would certainly ding the OP for SE tax.
And, if they didn’t file a 1099 (and from what I read from the OP they file nothing) then claiming the OP as a independent contractor won’t work after the fact. The IRS won’t play that game. They will make them pay all payroll taxes.
So, if the OP finks them out, he’ll only be responsible for the actual Income tax. + Interest and maybe penalties. If he waits for the Feds to find him (and they will) there certainly will be penalties, and large ones too. The IRS may even threaten criminal penalties (but a good Tax attorney would most likely be able to get rid of that).