I have an employee that mobile deposited his check, then went to a check cashing place and cashed it. The company is not going to make him pay the money back, are the monies considered taxable?
Yes, since they were given in the employment relationshiip and the employer would owe their portion of taxes (sui, futa, fica and possibly other benefits that are based off of pay such as workers compensation premiums, etc)
btw, this is a terrible precedent to set.... is there going to be any type of discipline/consequence at all?
Yes there is.
Pretty much all compensation is legally taxable wages. IRS does not have a "finders/keepers" rule. Any thing of value the employee "receives" (very broadly defined) of value is almost always taxable wages to the employee at time of receipt. Whether it was a so-called "accident" or on purpose legally changes nothing.
And agreed I do not like the precedent. Employees lie all the time. This could have been deliberate and will likely become deliberate in the future.
Not only taxable income, but subject to employee and employer taxes - that is, you are out not just the amount of the check, but the taxes that were not withheld along with the employer taxes - and if you cover the employee's share, that is also taxable income to the employee and subject to tax - that means, if you pay the employee's taxes, you will have to gross up the net amount so that the taxes you pay are also covered.