Seattle staff lost Social Security credit after their boss kept $1M withheld from wages. Pay stubs may help win it back

And while he collected payroll taxes over that period, he didn’t bother remitting those taxes to the Internal Revenue Service. Instead, he kept the money for himself. Over a decade, he failed to pay $1,027,362 in payroll taxes.

Nor did he bother remitting the employer portion, either. That included Social Security taxes, Medicare taxes and federal unemployment taxes, bringing the grand total of withheld taxes to $1.4 million.

Now he’s paying the price: McCormick was sentenced to 13 months in prison by the U.S. District Court in Seattle, as well as three years of supervised release. He was also ordered to pay back all of the money.

While justice may have been served, that may be cold comfort to his employees, who now have gaps in their Social Security records that could impact their future retirement benefits.

How missing payroll taxes impact retirement benefits

Employers are required to collect and remit payroll taxes, based on employee’s wages. FICA (Federal Insurance Contributions Act) is a federal payroll tax of 15.3% — split between employers and employees — that’s used to fund Social Security and Medicare.

For Social Security’s Old-Age, Survivors and Disability Insurance (OASDI) program, you and employer each pay 6.2% of your wages, for a total of 12.4% — up to the taxable amount of $184,500 in 2026 and $192,300 in 2027. The Medicare tax rate is 2.9% of wages (1.45% for the employer and 1.45% for the employee).

In this case, an investigation by the Internal Revenue Service – Criminal Investigations (IRS-CI) found that McCormick kept that money for himself, spending around $400,000 on a home remodel, $125,000 in casinos and $38,000 on travel.

“This defendant chose to use money that should have gone to pay for the employee’s future benefits, to pay to remodel a home on Vashon Island,” according to Acting U.S. Attorney Neil Floyd. “Unfortunately, the employee’s Social Security work records now show gaps where they don’t have credit for the years they put in at McCormick’s restaurant.”

The Social Security Administration (SSA) calculates your retirement benefits based on your lifetime earnings records. So, if your employer hasn’t been remitting your payroll taxes, your SSA earnings record will show $0 in earnings over that period. That means your monthly retirement checks could be permanently lower in retirement.

“Unfortunately, employees can discover, in a couple of unpleasant ways, that their employer may not have reported or deposited the income, Social Security, and Medicare taxes withheld from their wages. And it happens more often than you might think,” writes Jean Lee Scherkey, EA, a tax expert with TaxAudit.

But she says all is not lost — so long as you have a copy of your paystubs. That means McCormick’s employees might not be completely out of luck.

How can you correct your earnings record?

Typically, you have a very specific window of time in which to correct your earnings record: three years, three months and 15 days from the end of the tax year you were paid wages.

But there are some exceptions, according to the SSA, which include correcting errors “due to employee omissions from processed employer reports or missing reports” and “wages reported by an employer as paid to a person, but not shown in our records.”