You are not likely to recover anything in a civil court for that. Your best bet would be to file a claim for reward with the IRS and report your employer's activity through that channel. Make sure you are accurately reporting your income before you take that step.
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You are required to report your income regardless of whether your employer reports it to the IRS. I don't see what you would sue your employer for in this case. You sue for damages and if you have reported your income you have no damages. Your employer reports your income on an information return. There are penalties if this is not done properly. You could report your employer to the IRS and let them handle it.
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