PDA

View Full Version : Are there any positive aspects of being paid under the table?


dnooman
05-02-2006, 02:12 AM
I just started a part-time job, and at the end of the night, the guy paid me my hourly rate in cash. I was puzzled, since I've never been paid UTT before, he then said that I could choose to get a paycheck instead. I'm almost %100 sure that I will choose the paycheck option, but I'm still curious.

FTR, I have no intentions of defrauding the government or evading taxes. I'm pretty sure that's illegal.

The job is a delivery job, with tips, mileage reimbursement, and a pittance of an hourly wage.

If I report nothing on my taxes at year end, it looks like I recieved no money from them, and I end up committing tax fraud. Can I just report everything at year end? Wouldn't that screw me in the end (figuratively)? Maybe there's a way that I can get paid UTT, then have an accountant work some magic and end up ahead.

Is the employer doing something illegal?

I'm almost positive that I'll opt for the paycheck option, if not for the handy deductions alone, then for my peace of mind.

I suppose that a refined version of the OP would be "Can I use UTT pay to my advantage and still be legal, or is it just a Pandora's box full of auditing?"

Buck Rogers
05-02-2006, 02:40 AM
Small business that are cash intensive like paying under the table cash. An example is a hotdog cart, they receive all cash and pay the hotdog cook with cash. At the end of the year they show a slight profit and pay little taxes. The question of fraud or creative accounting is an entirely different issue.

Most business don't like to pay with cash because they cannot write it off. I can't see any other reason to pay cash unless it's to hide a documented paper trail for uncle sam or they are unorganized.

AnabolicDoberman
05-02-2006, 03:36 AM
FTR, I have no intentions of defrauding the government or evading taxes.


Suuuuuuure. ;)

Well even if you do file correctly it would be a shame if you "forgot" to include some of that cash. In fact the government might go broke :D

dnooman
05-02-2006, 04:02 AM
Sweet!

Based on the law of averages, I have much more material.

myskepticsight
05-02-2006, 08:37 AM
The pizza joint I worked at, you got your paycheck of delivery fees, and you walked out the door every night with your cash tips. They claimed some of their tips on their taxes, but I don't think they kept count of how much money they made with tips.

Martini Enfield
05-02-2006, 08:51 AM
I can think of three major benefits to being paid Under The Counter:

1. You're not paying tax on it. This means anywhere from 15-30% more money in your pocket.

2. It's cash! So, no bank fees, transaction fees, or hassles involving someone in head office forgetting to put the pays through or computer errors that mean you don't get paid on time

3. If you're getting Social Welfare benefits, anything you earn is likely to affect the amount of your Social Welfare payments. Being paid cash means you're not likely to declare this income to the Appropriate People, which in effect means you're going to get a lot more money than you're entitled to from Social Welfare. (Rather a lot of this goes on in Australia- it's been jokingly said that ripping off Centrelink is Australia's third National Sport after Rugby and Cricket).

Of course, getting paid cash isn't illegal in and of itself, provided all the appropriate taxes are being paid- but not paying taxes and/or not declaring income for Social Welfare purposes IS illegal, as I'm sure you already know.

Sam Stone
05-02-2006, 09:04 AM
The employer may be doing something illegal. He could be paying you under the table for all sorts of reasons - to avoid compliance with various labor laws, to avoiding paying various employee-related expenses.

Here in Canada, the employer has to pay a share of the employee's Social Insurance, UI, etc. If you get paid under the table, the employer is skipping that part of his payments.

Annie-Xmas
05-02-2006, 09:08 AM
No bank hassles. You don't have to prove your identity, go to the bank, provide I.D., wait on-line, etc. etc. Cash doesn't bounce.

Some employers who hire cash employees couldn't afford them if they had to pay the government withholdings on the money.

A.R. Cane
05-02-2006, 09:30 AM
If it were me I'd take the cash and keep quiet. I'd guess that your really losing money on this deal anyway. The wear and tear on your vehicle probably exceeds your reimbursement and if you want the write off on miles used for business then you'll have to keep mileage records. Of course your probably not making enough to itemize anyway.
Have you considered that your auto insurance almost surely excludes this type of use, so if you're involved in an accident, you won't be covered.
You'd very probably be further ahead working a min. wage job w/ a paycheck and deductions taken out.

panache45
05-02-2006, 09:40 AM
I've been taken off one of my medications, and I have a few hundred of the pills left, for which I have no use. If I know someone who takes this medication, and has a valid prescription for it, is it illegal for me to sell him my pills? What if I simply give them to him?

panache45
05-02-2006, 09:41 AM
Crap. That should have been a new thread.

Gfactor
05-02-2006, 09:51 AM
The employer may be doing something illegal. He could be paying you under the table for all sorts of reasons - to avoid compliance with various labor laws, to avoiding paying various employee-related expenses.

Here in Canada, the employer has to pay a share of the employee's Social Insurance, UI, etc. If you get paid under the table, the employer is skipping that part of his payments.

Same here. http://www.smartfast.com/enews/ea_paying_under_table.html

Honey
05-02-2006, 09:52 AM
Receiving at least part of your pay in cash could allow you to hit the threshold where you can qualify for medicaid. I know of some people who also refuse pay raises for the same reason.

Cliffy
05-02-2006, 10:09 AM
The primary benefit to both employer and employee to getting paid under the table is the same -- the illegal avoidence of taxes. When an employee is paid UTT, there is typically no record of the transactions. Therefore, the employee's W-2 does not record the cash income allowing him, if unscrupulous and stupid, to not declare that income and therefore not pay the associated tax. Similarly, the employer can avoid witholding income tax (which is a hassle), and both parties completly avoid paying the employee's FICA (Social Security and Medicare), as well as any federal or state unemployment insurance contributions that are due. Since both employer and employee typically contribute to these pots, unrecorded cash transactions mean that they're both illegally avoiding these payments.

Of course, not only are these all felonies, they also work, like everything unregulated thing ever done by management, to screw the employee. In the States, your Social Security benefit on retirement is calculated on a formula based primarily on how much you earned during your working years. Becasue there's no record of the true labor the employee did or the true wage he was paid, that benefit will be lower than the employee really deserves. (Although given that over the years the defrauding employee as already deprived the public fisc of this and more in his failure to pay income taxes, I can't really get too worked up about it.) The longer you work under the table, the larger this disparity is going to be when you retire.

More directly, since unemployment insurance is paid through a combination of employer subsidies and employee paycheck deductions, if the employee gets laid off, even in most states up to years later, he won't get the unemployment compensation he's deserved -- your unemployment amount is based on your reported salary when you were working. In fact, if the employee gets laid off directly from the job paying him UTT, he might not be eligible for unemployment comp at all because as far as the state government is concerned, he hasn't been working. State disability insurance may work in a similar fashion.

Finally, as Martini notes, another "benefit" of being paid under the table arises if you're actually on Social Security, unemployment, Welfare, disability, or Medicare/caid at the time you do the work. Depending on your program, the government would typically reduce your standard benefit amount in a week in which you earned money elsewhere. In some disability programs, you may be ineligible to work at all and still maintain your benefits. Keeping your income secret from the government agencies enforcing these rules can mean your payment doesn't change when it should. Of course, this works a fraud on the government, and you can bet your as that's illegal -- and not something they take lightly like sparking up. I've heard on the radio (no cite, sorry -- take this as unsubstantiated rumor) that the Bush Administration has been particularly aggressive in finding and prosecuting Medicare and Social Security cheats as a way of limiting the cost of these programs.

So, in summary: yes, there are benefits, but the big ones are fraudulent, felonious, and detrimental to the employee long-term.

--Cliffy

Cliffy
05-02-2006, 10:14 AM
Receiving at least part of your pay in cash could allow you to hit the threshold where you can qualify for medicaid.
This is, of course, illegal.

--Cliffy

treis
05-02-2006, 10:16 AM
Your employer not only might be paying under the table to avoid taxes, but he might be doing so to avoid paying insurance on you. It would suck pretty hard to get hurt then not get your medical bills paid for becuase he didn't pay premiums on you.

Gfactor
05-02-2006, 10:19 AM
Masterful work, Cliffy.

Honey
05-02-2006, 10:26 AM
This is, of course, illegal.

--Cliffy

Yes, I know. I should have said that.

Annie-Xmas
05-02-2006, 11:21 AM
I'm surprised nobody has mentioned the main benefit of getting paid in cash: It allows you to get paid for illegal work.

A.R. Cane
05-02-2006, 11:41 AM
Just as an extreme example, I had a FiL who lived in rural Lousiana and mostly earned a living painting houses. He always got paid in cash or barter. He didn't trust gov't. and was smug in the belief that he was getting away w/ something. When he died, in the early 80's, his widow was left w/ nothing. Fortunately her rent was only $60.00 a month (believe it or not) and she had friends and family to help out. She got some food stamps and a little over $300.00 from SSI (not Soc. Sec.). She wound up in a crappy nursing home when she lost her eyesite and her worldly possesions were limited to a bed and what she could fit into a nightstand. So much for "beating the system".

MikeS
05-02-2006, 04:44 PM
Nobody's mentioned something important: it's not enough to just report the total cash you received throughout the year when April 15 rolls around. You're required to pay estimated taxes (http://www.irs.gov/businesses/small/article/0,,id=110413,00.html) throughout the year (generally in four installments) on any wages you get from which insufficient taxes are withheld. If you don't, you could be subject to penalties. (http://www.irs.gov/taxtopics/tc306.html) A paycheck, of course, avoids this hassle.

Jake
05-02-2006, 05:32 PM
I was the business manager in a medium size business and was told that we could hire "Spot Labor" up to around a thousand dollars total. No taxes no insurance (they had to have their own) no contract labor. Pay cash and put it down as temporary help. Now, a thousand dosen't go very far but we used it for outside labor such as replacing a window, things like that.
I'm in NC. Hope my CPA was correct! :)

Billdo
05-02-2006, 06:02 PM
Nobody's mentioned something important: it's not enough to just report the total cash you received throughout the year when April 15 rolls around. You're required to pay estimated taxes (http://www.irs.gov/businesses/small/article/0,,id=110413,00.html) throughout the year (generally in four installments) on any wages you get from which insufficient taxes are withheld. If you don't, you could be subject to penalties. (http://www.irs.gov/taxtopics/tc306.html) A paycheck, of course, avoids this hassle.

In addition, you can't just report "illegal cash income" on your 1040. I you report it as income, you'll probably have to report it as Schedule C self-employment income, like sole proprietors and independent contractors. However your Schedule C income is subject to Self-Employment Tax (Schedule SE), which is the equivalent of Social Security taxes for the self-employed.

The issue is that although employees have about 7.5% of their gross pay withheld for Social Security taxes (assuming they make less than $90,000 or so), employers have to match this contribution out of their own funds. If you're self-employed on the other hand, you have to pay approximately 15% of your self-employment income in Self-Employment taxes.

Put more directly, if you declare cash income as self-employment income, you'll be losing about 7.5% of your earnings in self-employment taxes you wouldn't have to pay if you were legally employed at the same gross salary.

Eva Luna
05-02-2006, 09:00 PM
I've known of several cases where ex-spouses and noncustodial fathers of children chose to work for cash so the state couldn't garnish their wages for unpaid child support. Charming, no?

Martini Enfield
05-03-2006, 04:42 AM
Nobody's mentioned something important: it's not enough to just report the total cash you received throughout the year when April 15 rolls around. You're required to pay estimated taxes (http://www.irs.gov/businesses/small/article/0,,id=110413,00.html) throughout the year (generally in four installments) on any wages you get from which insufficient taxes are withheld. If you don't, you could be subject to penalties. (http://www.irs.gov/taxtopics/tc306.html) A paycheck, of course, avoids this hassle.

This really depends where you live- Australia & NZ have a "Pay As You Go" (PAYG) system, where your tax is automatically taken out of your pay and sent to the Tax Department each week. (For all intents and purposes, anyway).

At the end of each Financial Year, you get what's called a Group Certificate (in Australia), which states how much money you earned and how much tax you paid. Then you lodge your tax return, and either get a cheque or a bill in the mail.

For individuals, there's no estimating likely future income (in most cases), and any income earned in the course of a hobby or won from gambling/competitions is tax free, too.

Of course, if you got paid cash for your regular job, and no tax was withheld... yeah, you see where this is going.

IIRC, a couple of years ago (1996, maybe?) the NZ IRD (Inland Revenue Department) left the "Did you earn any income that you did not pay tax on, eg under the counter/cash work?" question off the Tax Return form because no-one ever ticked "Yes" to it... I recall a couple of people commenting on it at the time, but as a 15yo I really had more interesting things to worry about that Tax Forms, so I may be misremembering it.

Cliffy
05-04-2006, 02:00 AM
Masterful work, Cliffy.
Aw, shucks.

--Cliffy