Working Under the Table Leaves A Trail

Working under the table or paying someone under the table is “unreported employment” usually paid in cash since it’s harder to trace. 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.

What does working “under the table” mean?

Working under the table, often referred to as “unreported employment,” means working for cash without records. 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 under the table, sometimes called “working off the books,” isn’t necessarily illegal, but to avoid possible tax evasion issues, the income must be reported at tax time. Working and intentionally not declaring income, in most cases, is a federal offense.

What happens when employees are paid cash for working under the table?

Cash payments under the table for the purpose of creating unreported employment are illegal and could result in prison time. An employee is required to report all wages to the IRS, including those that are paid in cash. Working under the table for cash is commonly associated with jobs such as babysitting, yard work or bar tending. Other businesses dealing heavily in cash transactions, such as convenience stores, gas stations, liquor stores, etc., are also on the IRS radar. Many small manufacturing shops dotted across the country slip cash in the payroll check envelope to “help” employees with un-taxed cash. These employees seldom complain about working conditions, low wages or lack of benefits.

Both employer and employee know when cash is being paid for working under the table with the intent to avoid paying taxes. An employer who doesn’t comply with employment payroll laws should be cause for employees to worry about potential dangers and problems in the workplace.

Is paying employees in cash ever legal?

Some employers choose to pay their employees in cash rather than by check or direct deposit. If an employer pays in cash, the law still requires that the employer comply with employment laws. This includes deductions such as federal, state and local taxes, FICA deductions and payments for social Security and Medicare. Also included would be any deductions required by court order to withhold and submit payments from an employee’s income. Individual states could have specific laws about cash payments which employers would be required to follow.

Generally, paying wages in cash is as legal as a paycheck or direct deposit as long as the employer adheres to federal and SALT compliance laws. An employee should expect a “stub” or statement along with the cash payment indicating that all withholding payments are being deducted.

What dangers do employees face when working under the table for unreported wages?

1. If an employer is breaking one employment law, how many more are being broken? Are safety requirements met? Is equipment inspection and upkeep being maintained? When you receive a pay envelope containing cash along with your paycheck and stub showing those deductions, are you confident your employer is actually submitting those payments?
2. If your employer is audited, their tax problems could very likely become your tax problem.
3. Proof of income is required for many business and personal reasons. Apartment rental and lease agreements, mortgage applications, student loan applications and refinancing, subsidized health coverage, insurance applications are some examples.
4. Your debt-to-income ratio is based on your provable income against your debt. Auto insurance rates are influenced by this number. Even if you have a good credit score, your debt-to-income ratio can cause problems. Many businesses and institutions consider your handling of debt as a character reference.
5. If you’re injured on the job, but your employer hasn’t been submitting Worker’s Compensation payments, you may have no coverage.
6. The doors are locked one morning when you come to work. Failure to pay taxes can shut a business down almost overnight.
7. Future Social Security benefits are at risk. Years of unreported wages can be devastating, whether relative to retirement, survivors benefits or disability benefits.
8. Criminal charges.

What dangers do employers face when paying unreported wages?

1. Billions of dollars of employment taxes are uncollected and the IRS is focusing on these unreported and under reported taxes. The IRS handles “inadvertent errors” and “willful acts” differently. Intentional acts can quickly bring on criminal charges.
2. Payroll tax fraud investigations can begin at either the state or federal level. Information can be shared.
3. Employment taxes are “trust fund” taxes and are held in a special trust account for the United States. The Trust Fund Recovery Penalty can pull in as a “responsible party” corporate officers, partners, directors, shareholders, payroll service providers, employer organizations and other responsible parties within these service providers and organizations.
4. Along with being responsible for repayment of wages, taxes, fines and penalties, responsible parties along with spouses and possibly other business associates could be drawn into IRS audits which could easily and quickly mount to more than a $50,000 tax issue. This in turn could result in other problems, including the revoking of passports through the FAST Act.
5. Criminal charges.

How does the IRS find out?

The IRS and other agencies use statistical measurements and compare a company’s payroll to other similar businesses. Anything that appears outside standard, an outlier or a red flag, will get the attention of the IRS. Red flags go up when these businesses report fewer employees than comparison businesses and other outliers the IRS monitors. An angry employee or one going through divorce or child custody issues or a past employee filing for unemployment benefits could trigger a chain of events leading to a business tax audit, and pull in employees as participants in tax evasion and fraud.

What’s the bottom line?

An employer can’t pay illegal cash wages unless there are employees working under the table who are willing to receive illegal payments. An employer can, however, pay legal wages, provide check stubs, and still not fulfill the fiduciary and legal responsibility to handle trust fund taxes and other taxes and obligations.

We have researched businesses for clients considering job offers. We have also prepared statements for business owners who are seeking the type employees who would request an authenticated financial overview of a business before accepting a position. This is what we do.

If you’ve never consulted a CPA tax specialist or understood why an individual would need this type qualified professional service, now is the time to contact us. Our goal is to become part of your overall life and business goal planning team so that you’ll be able to establish your own goals and know that you have a trusted professional on your team. We establish and maintain a personal and business relationship with our clients. Your LIFE is your business and your BUSINESS is your life. We’re here for YOU.

Call us at 479-668-0082. Use my Calendly Page (it’s easy) to set an appointment or email us.

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