Call me stupid. For reasons which we will not discuss in this thread (because of the tangents that would hijack the discussion) I am honest to the point that most would call delusional in today’s “shades of grey” world.
I intend to pay taxes on the money I’ve earned from my under the table pizza delivery job. I had no idea that this action would affect my employer, and I am now faced with a dilemma. How can I fulfill my obligation to pay taxes on my income without destroying my employer’s business? I don’t want to get him audited, and I recently learned from my tax preparer that precisely that will happen if I claim myself as an employee when he is probably not. What can I do? I don’t know the tax system well enough. I earned about $15k there overall, although 75% of that was in tips.
I really thought that you could just claim the income at the end of the year. Oops. One of you dopers has to know something for me to do! My boss is very generous and a good guy, he just doesn’t want to jump through the tax system’s hoops by putting all his employees on the books, since the entire kitchen is of questionable legal status and he can not operate without them (He’s Italian, believes in the family unit, and their whole Mexican family works in the kitchen). He offered to pay me cash when I started. I thought that just meant get cash now, pay taxes at year end in a lump sum.
I have no intention of violating any laws, nor do I intend to circumvent them. I just want to know if there is some way for me to file and fulfil my moral obligations to “Pay Ceasar’s things to Ceasar” without sending my boss up the creek without a paddle.
Call myself a “private contractor”? Consider the income gifts exchanged for services performed? Although that sounds like something a lot of hookers would try and use… Maybe I’m under some income bracket since this is a secondary job that means I don’t have to claim it? I just don’t know enough!
If you’re that concerned about it (and you seem to be), have the owner of the company call his CPA and write you a 1099-MISC for the amount of money you made. I think that will accomplish what you are trying to do.
What exactly is a 1099-MISC ? Would he know what it was if I just said that? Are there limits to the amount of money that you can claim on a 1099-MISC ?
I am not a tax accountant but I do know this. The rules of what makes you an employee versus a contractor are very strict. You would almost certainly be considered an employee by the IRS. If either one of you is audited and they figure out that you are an employee, the employer will be liable for for employment taxes which is something like 7.5% of what he paid you.
I’d suggest you Google for the IRS rules on independent contractors. I’m not a tax expert, but I did operate as an I.C. for 15 years. The IRS has been pretty lax about this for a number of years and a lot of people are using it that I don’t think could pass an audit, but it goes on.
The drawback, to you, is that you have to pay all of your FICA, about 15% of earnings. Have you discussed this w/ your “employer”? He might run it by his accountant and figure a way to do it legally. I do think it’s possible, but I’m not qualified to advise you.
I’m, more often than not, paid in cash. I’ve been issued a 1099 by some of my customers. Some of the customers submit a copy to the IRS; some don’t.
You could just declare it without revealing the source. Just add it into the line for income. You could be even more honest by adding a note that the extra added income came from cash only business deals without specifing who paid it. (In fact a note is good all the time, with a note the IRS can disallow but it can’t claim fraud.)
If the IRS doesn’t allow the extra added income then that would only reduce the amount of taxes you owe.
A 1099 is a statement of money paid to someone as a contractor. If you meet the requirements (as hajario says, there are guidelines for this) and receive more than $600 from the employer, you would then pay taxes on it as a self-employed person. Instead of FICA being split between you and the employer as it usually is, you would be responsible for self-employment taxes (15%) plus federal, state and city taxes where applicable.
IANATA either, but you wouldn’t be a contractor. They have self-discretion on when to work, other clients, etc. You worked at the discretion of the pizza place and your job was defined by them.
Chances are you would owe taxes on $15K, even with the standard deduction and exemption.
That’s a 1099-MISC (what you described). There’s others like a 1099-DIV (for dividend payouts) and 1099-INT (For interest, you get this one each year if you have a savings account, or even an escrow account).
A 1099 in general is a statement you get saying that a company gave you money but didn’t withold any taxes on it. They also send a copy to the IRS so the IRS knows to expect that tax from you and not them.
The standard “I am not qualified to provide an answer” disclaimer.
An alternate way, if he doesn’t give you a 1099-MISC, may be to file Schedule C with your taxes. A Schedule C is for business or professional gains/losses. You wouldn’t use it as an employee, but if you want to pretend to be an independent contractor/consultant, it would give you a place to claim the income without requiring a 1099-MISC.
Filing a 1099 would be great for your employer and not so great, but a sollution for you. You would be paying more taxes on the money made then you would have as an employee. He would get out of paying workmans comp, his share of your taxes and be able to use your pay as cost of business deduction.
I would if possible avoid declaring any of it. (make sure you have enough legitimate income to cover your bills in case you get audited). Now that we are in a new year ask your employer to put you on the books so you never have this dilema again.
If you only care about following the moral imperative of the law and not the letter, you could just calculate the tax you would owe on your income and give it as a “voluntary donation to reduce the national debt.” This choice has the added benefit of validating the (probably) millions of dollars spent on ink for that checkbox and sentence on countless 1040 forms that have all gone unused until now.
I don’t advise the above, since it probably looks really suspicious and also probably wouldn’t actually protect you from legal liability in the event of an audit, but it is an option.
I used this method when I received a fifty-dollar honorarium for delivering a lecture, so I know it works. It may raise a red flag if you report thousands of dollars in additional income, though.
Your employer is cheating you!
So why are you worried about him getting audited, and having to pay the taxes he is evading now?
By paying you under the table, this employer is evading paying his share of FICA taxes, and you are not getting credit toward Social Security for this income. When the time comes for you to retire, none of this income will be counted in calculating your Social Security income.
So he’s not only screwing you now (no workers comp, no benefits, etc.), but he will still be screwing you years from now when you’re retired and get less Social Security than you deserve! Hell with him! Report your income honestly, and let him deal with the consequences of his crooked business practices.
(There is some possibility that if they ever investigate, between the tax evasion, the under the table employees, the defrauding of workers comp, the employment of illegal alien workers, etc., would be enough to put this whole ‘business’ under. You might want to be on the lookout for a legitimate job to replace this one when that happens.)
Is this really true? For example I declare $500,000K additional earnings. It seems the worst that would happen is that I would get audited to make sure it’s really just $500,000K and not much more than that. What does the IRS care where the money came from if it’s being taxed at the max rate anyway? I won it in a private poker game. Sold my own artwork I don’t like to talk about. Etc.
The IRS cares for the sake of accuracy. If you have $500,000 appear via mysterious means, then who’s to say you didn’t really have $1,000,000 appear, and only claimed half of it?
But that’s what I said. The worst they’ll do is snoop around a little to make sure you don’t have more – you’re not actually getting in trouble unless you have more. I know it’s often that people who cannot be convicted of their actual crime are convicted of tax evasion on the proceeds from that crime. However, how often is somebody who did not evade taxes get convicted on something that was discovered during a routine IRS audit? It just seems like they can check your assets, spendings, transfers, and if it all checks out close the issue – would they really try to figure out that the money is coming from an underground slave trading operation or something? After all, it’s a lot harder to find out where the money is coming from rather than that it is coming at all (hint: check for yachts).
Yes, you are right- if you report all your income- and properly report your expenses- jail is very unlikely. But, some sorts of income- such as “Trade or Business”- need to have Social Security taxes paid, and if you just put down “Income: $500,000” the IRS will ask you to characterize the type of income to see if you owe SE or similar Employment taxes on it.
And, no- the IRS won’t just "check your assets, spendings, transfers, and if it all checks out close the issue " as there are no legal deductions for most sorts of illegal income (there can be exceptions if the “illegal” is just local laws, see your Tax Expert). The IRS will want to know, and they have every right to ask. And they *will *ask.
MY Brother is an Enrolled Agent who used to work for the IRS. For the OP, he suggests: 1. Hire a real enrolled tax expert- CPA or Enrolled Agent. Not “just a tax preparer”. 2. Follow his advice. 3. Follwing the advice of a Tax Attorney (too expensive here) a CPA, or a Enrolled Agent gets you a certain amount of immunity from penalties. He makes no other suggestions, there isn’t enough info here, and perhaps you shouldn’t push it. Get competent professional advice and follow it.
While the penalties for violating employer/employee payroll rules are indeed very strict, the definition of an employee is not precise at all. Obviously some of his workers are indeed employees (especially those in the kitchen who are supervised), you could make the case that a delivery person who uses his own car and is subject to no more instruction than “Take this pizza to this adress in 10 minutes” is an independant contractor.
The owner is required to issue you a 1099 but his not doing so doesn’t prevent you from reporting all of the income and claiming all of the expenses you incur on a Schedule C. You will be subject to the self-employment tax on the net which hurts though.
Incidentaly, under certain circumstances, those who earn money for temporary work that is not a regular trade or business can report it on the front page of their 1040 as other income and not pay self-employment tax on it. No expenses though. A tax professional could give you more info on that situation.
t-bonham@scc.net - that’s awfully unfair to assume the worst in a person. He’s not cheating me, I know that because he’s constantly paying me a little extra here and there, and he pays me more hourly than the other delivery drivers because he recognizes that I work harder. It may be to his advantage to not have me on the books as an “employee” but like was posted before, I’ll just go on the books for this year and try and weather the storm this time around.
I did the math on my earnings and it seems that he only actually paid me about $2500, the rest was all tips. And my total income was under $10k for this job. So doesn’t that decrease the amount of tax he’s been evading anyway? And how does the difference in tips versus hourly wages affect the way I file on a 1099?
If I just claim the income as “self employed” and add my expenses in and basically file as if I’m just a contractor, then mail in the return instead of e-filing, would that decrease or increase my chances of an audit? If i claim “self-employed” am I responsible to enumerate where the income came from?
