Working Under the Table Leaves A Trail | Melanie Radcliff CPAWant to reply to this thread or ask your own question? You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out. Forums New posts Search forums. Members Current visitors. Log in Register.
How to Handle Your Books When Your Money Is Off the Books: Financial Planning in a Freelance World
According to the IRS, employers who pay under the table typically violate other tax, insurance and employment laws. Employees who are working under the table could find themselves in an unstable, unsafe and unethical environment. Cash is harder to trace. Paying cash under the table for the purpose of tax evasion is illegal. If audited, an employer can expect to pay back all the money owed, along with interest, penalties and fines, and to be subjected to criminal convictions. Working and intentionally not declaring income, in most cases, is a federal offense. Cash payments under the table for the purpose of creating unreported employment are illegal and could result in prison time.
The concept of working off the books means that a person is being compensated in cash for services performed, but the payments are not recorded on the books of the employing business. The business offers this sort of arrangement in order to avoid paying any payroll taxes , as well as to avoid paying for workers' compensation insurance and any of the benefits normally offered to its employees , including medical insurance and vacation pay. The person accepting a "working off the books" arrangement may do so out of desperation, since there is no other work available. Alternatively, the individual may not have a work permit, or may be trying to avoid any record of earnings in order to avoid child support obligations. There are a number of issues with working off the books that both the employing business and the person being paid should be aware of.
Unreported employment; working under the table, off the books, cash-in-hand, illicit work or (in UK English) moonlighting, is illegal employment that is not reported to the government. The employer or the employee often does so for tax evasion or avoiding or.
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Employer Risks & Rewards
Freelancing and being self-employed are the new frontier in the American economy. According to the Bureau of Labor Statistics , the number of self-employed workers in the U. As Fast Co. When you add in professionals that have traditionally been compensated with no record of the financial transaction - such as performers, dancers, DJ's, musicians, etc. This is a brave new world that requires brave new financial planning. After all, when you make a lot of money off the books you don't have an employer and a salary doing your basic financial planning for you, such as budgeting a regular income over a month or a year; paying into savings; taking money out for health insurance; reporting to the IRS; providing compensation for vacation and personal time, the list goes on. In other words you have to do the planning yourself.
If your employer typically controls which tasks you perform each day and the way you complete them, you should be paid on the books as an employee. Your employer is also responsible for making matching contributions to Social Security and Medicare and paying federal unemployment taxes. By paying you under the table, your employer saves a substantial amount of money in these taxes and gets to avoid the bookkeeping burden that payment of these taxes would otherwise require. But given the penalties your employer faces for not withholding tax, paying employment taxes or filing a W-2 for you — the consequences can be quite expensive for them. Regardless of how you earn income, you have an obligation to report all money you earn and pay the appropriate tax on it.
I was wrongfully fired off of assumptions. It's a small family owned business. They used to pay me under the table. This is one of those questions that is difficult to answer in a few paragraphs but I'm going to give it a go. For the sake of simplicity, I'm going to restrict my answer to the tax-related implications and not address any of the employment related or other legal questions - that's a whole other can of worms for which you may want to seek legal counsel. First, it's important to understand what "under the table" means.