If your employer paid $1,800 or more for your services during 2012 (she did), then she’s required to issue a Form W-2 and remit social security and Medicare taxes. She’ll also be liable for unemployment insurance taxes and possibly worker’s compensation insurance premiums; but, that’s her problem, not yours.
She should have obtained your personal information, including your SSN, when she first hired you. She also should have had you complete a Form I-9, Employment Eligibility Verification, to confirm that you’re eligible to work in the U.S.
My take on all this—she wanted to pay you “under the table,” not issue a Form W-2, and not remit payroll taxes. She recently learned that she could claim a Child Care Credit based on your wages, however, so she’s backtracking and trying to fix everything.
It’s worth noting some of the misinformation provided in other posts:
—A household employer isn’t required to withhold any taxes from your wages. In fact, nearly every household employer withholds nothing and, instead, chooses to pay both the employer and employee portions of social security and Medicare tax. This is beneficial to you.
— Your employer’s correct when she says that you won’t owe any back payments for social security and Medicare. She’ll pay the taxes, on behalf of both of you, when she files her 2012 Form 1040.
—This isn’t an independent contractor/Form 1099-MISC situation. You’re an employee in every respect; you’re not a self-controlled consultant or otherwise self-employed.
—Being on the grid isn’t such a bad thing. So, you’ll be subject to income taxation on modest wages of $4,000; depending on where you live and other aspects of your tax profile, your federal and state income taxes may be $0. But, you’ll pick up some social security quarters, and you might be eligible for unemployment compensation if you lose your job. Leaving a job under untenable circumstances, such as being paid ⅓ of minimum wage, is often deemed to be the equivalent of dismissal without cause. Also, if you’re in the open and not hiding your situation, you can report your absurd working conditions and seek justice.