Reporting of tax fraud?

I work for a very small company in Wisconsin (I’m the only “official” employee). My employer does have another employee, but does not withhold income taxes from him. I help with the bookkeeping and have talked with this other employee about this, and know this as a fact. My employer illegally treats him as an independent contractor, though he does not maintain his own separate business, and is under the daily direction of my employer, and works an average of 35-45 hours per week for the employer. This other employee pays his own income taxes at the end of each year, in one lump sum. Is all this significant enough to report to the IRS? I’m struggling with whether or not to fill out and mail Form 3949-A and mail it to the IRS. Should I report this?
I am not the one responsible for paying the taxes. I have nothing to do with the writing of the checks, withholding taxes, etc. I just work there.

It’s entirely up to you whether you want to report it or not. Without more information than what you have provided, I would not report. If you have more information to provide and you feel strongly enough that there is a violation, go ahead and report it. Just keep in mind that if this is a small company with the owner, you and another worker, your reporting this may end up closing the business and both of you may end up losing your jobs. But again, if there is a clear cut violation, report it.

If the other person is upset about this, he can fill out a Schedule SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding and let the IRS determine the worker’s status, and persue it further on his end.

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