no i actually quit on thursday when i found out about this tax situation and a few other under handed things there doing! They dont claim us as emplyees at all...its a damn mess, I just want to do the right thing!
Speak to the employer again. Are you still working for them now? I would expect that to end once you have outed them to the IRS.
You will also pay more in taxes by being self emloyeed rather than an employee. Last I checked its an extra 7%...maybe a little higher.