[chipsa]

According to IRS Pub 15[0], I think companies are legally required to deduct the employer share of taxes. This doesn't apply to self-employed contractors because they're technically self-employed (so the employee and employer are the same). The W-4 can change your deduction rate, but only for the income tax portion, not SS/Medicare.

0: https://www.irs.gov/publications/p15

[eszed]

Yep. You're right, and I should have been more clear about that. There is nothing in the story, however, to suggest that this woman changed anything other than her employee-end deductions - and if she had, I'd expect there to have been a fairly-prompt criminal prosecution, rather than a drawn-out administrative "investigation".

Many years ago I worked for a restaurant whose owner was playing games with those employer-side deductions, trying (I believe) to stay solvent long enough to make it to the summer, and then pay off the back-due amount out of (expected) seasonal revenue. He almost made it, too. On June 15, however, I showed up to work to find the doors padlocked, with scary signs on them from some federal agency. The owner ended up having to sell his house and hold a yard-sale (seriously) to pay them off and avoid being prosecuted.

Everyone who worked there knew the state the business was in. For months I'd fully-expected not to receive my final paycheck, but the tips were good enough that I stuck around. Credit where due, the owner was honorable enough to send me, and the rest of the staff, personal checks to cover our final wages. I'd work for him again.

[chipsa]

> altering her Social Security/Medicare FICA deductions in order to increase her biweekly take-home pay by a few hundred dollars.

There are no employee-end deductions you can change here. The W-4 only allows income tax deduction, not SS/Medicare. But the responsibility for ensuring it's done is on the employer, and they're responsible for ensuring the right amount, to a certain level of fidelity is withheld. And the amount she changed the total withholding is likely not enough to have triggered any IRS look into the details, and therefore criminal charges. Your restaurant owner likely was doing games enough to materially change the value withheld, which gets the IRS interested.