I live in CA and just received my first pay stub. My employer did not take out state taxes even though I completed a w-2 telling him to do so.

I started in December with the company and my first 2 paychecks were handwritten and I was not given a pay stub. I resigned last week and yesterday was given my normal check (he still owes me for 3 days) and told I was no longer needed. This check had a pay stub and I noticed that he did not take out any state taxes and very little Federal even though I claimed married 1 on my w-2. I think something illegal is going on. I was told by a friend that he has to match the amount of taxes so the least amount possible he can take out benefits him. Is this true and should I report this to the IRS?