Lets say I decide to take a job that only pays in cash. Meaning that the government does not know I make any money. What would happen to me if Uncle Sam found out? Or what would happen to my boss if Uncle Sam found out he was paying all his employees in cash?
No worry for you, but possibly so for the employer. I’ve done SEO work for a number of firms. It was just “pay me X, and I will do Y for you.” I was never an actual employee.
It not illegal to work for cash, or to pay in cash, so long as the income is reported to the IRS at tax time. Employers have an incentive to do so, wages are deductible expenses, but they have to also pay Social Security and state disability and unemployment insurance. If the IRS (or state agency) audits you, they can compare what your employer claims he paid you with what you reported as income to see if there are any tax laws being broken. But simply working for cash is not prohibited.
Well, if you got paid $25K for the year, and the IRS found out, you would owe taxes(plus penalties, plus interest) on this. So, there IS worry for you.
Messageboard advice is only that.
If you do not report your income and file the required tax return, you could be liable for taxes, penalties, and interest. And although it’s unlikely for a “small potatoes” situation, a federal prison sentence is a possibility.
If your employer does not report the wages, withhold federal tax, and pay Social Security, etc., he may face fines and in some cases federal time.
Not everyone who does this gets caught, and not everyone who gets caught ends up in a worst-case scenario, but violations of federal law can be nasty things to deal with.
Don’t screw around with the IRS… if you make money, go ahead and claim it as “other income” on your IRS forms. The IRS is unlikely to question you as to where it came from if you report it.
If you get paid in cash, just go ahead and keep a diary of your pay so you can report accurately at the end of the year. Remember to hold out 30% of your pay in savings against your tax liability.
If you decide NOT to report the income, well, you are in fact breaking the law when you file your return.
Some penalties are laid out on the below page.
I am not a lawyer, but I personally suspect you might be looking for the paragraphs below from the IRS web site. But I could be wrong, as precisely WHICH law your hypothetical individual might be breaking is slippery…
BEGIN IRS QUOTE
Any Person who… (1) Declaration under penalties of perjury - Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; shall be guilty of a felony and, upon conviction thereof;
* Shall be imprisoned not more than 3 years * Or fined not more than $250,000 for individuals ($500,000 for corporations) * Or both, together with cost of prosecution
END IRS QUOTE
And I should have told you this in the last post, but… just in case this IS NOT a hypothetical situation, I recommend retaining the services of an Enrolled Agent to counsel you should you have further questions.
Info on finding an enrolled agent here:
If you’re really hosed, the Enrolled Agent may refer you to a lawyer who specializes in tax law.
As pointed out above, taxes are the issue, not payment.
US currency reads as follows:
This note is legal tender for all debts, public and private. Kind of says it all, doesn’t it? I used to do rap videos, and sometimes the entire shebang was a cash deal. Always a bit amazing to step into the Winnebago at 4:51 am ( it was always really freakin’ late. Goddamned rap videos… ) and see cash. On the table.
Having said that, invoices were handed over and cash was signed for. These may have been guys with piles of cash but they were also production companies who had to prove cash flow. I never did a cash job that didn’t produce a 1099 tax form at the end of the year.
Now, there are threads that discuss getting and spending very large amounts of cash. ( I tried twice to use Search to get a link and couldn’t. Grrr. ) Being paid tens of thousands of dollars in cash is problematic on several levels. It’s somewhat rare in this country to be paid in full cash. The gummint will be interested and again, will require excellent documentation as to where you got the cash. Depositing or withdrawing more than 10,000 requires notification of the Federal Reserve and other banking entities. Hmmm. In fact, I was wired less than ten grand and got a notice in the mail, so it's likely less than 10,000.
I was once hired as a PA on a Bon Jovi music video basically to be the bag man. The label was wiring 10,000 cash from LA to NYC to pay for the video. I was driven to the Western Union office that at the time was at 41st and Broadway. I stood there, with a line of folks waiting to cash their Social Security checks, counting out Twenties. As fast as I freakin' could. Then I stuffed it into the bag I'd brought, ran to the waiting car and we bolted. An adrenaline-filled experience. I had to show copious ID and sign for the delivery of the cash. ( And then....... I was accused by a man who had known me very well for something like 6 years, of stealing 100.00 from the bag. Putz. He re-counted and it was fine. :rolleyes: ).
And if the cash part of your income is significant relative to the rest of it you need to make quarterly tax payments to make sure you don’t get penalized when you report it on the form at tax time. Your total tax withheld has to equal at least 90% (or maybe its 95%) of the tax owed or you get a penalty. There is a provision that if it equals last years tax you are also OK but I’m not so sure about that one. You can look that up in the tax booklet.
Slight hypothetical tangential hijack.
How do people get caught? I know people who have businesses that often accept cash as payment for services rendered. If someone pockets the cash, how does the IRS get scent of the transaction? Assume for this scenario that the payment is for labor only, so an audit would not show a discrepancy between purchases and sales.
The businessman’s employee gets in a fight with his wife.
She pays enough attention to know where he works, how much he REALLY makes in a year, and how much has been reported.
She leaves the employee, and calls the IRS to get her husband in trouble.
It takes down the employer and 10 under-the-table employees. Several employees get missed by the IRS, several don’t.
That’s one way.
Or, one of the employees (or the boss) gets audited, and the IRS works backwards. Remember, if the employees get audited, they’ll have a standard of living that doesn’t match their declared income.
If the boss gets audited, his labor costs will be ALL out of line with his profits for his industry. The IRS maintains profiles of different industries, and knows about how much a $10 million in revenue/yr construction firm would be expected to spend in labor. You might be okay coming in under by a substantial amount, or over by a substantial amount, but if you declare $9,000 in annual salaries for that business, you’ll wind up under more scrutiny than you can likely handle.
I just gave a couple of examples. There are a thousand examples of other ways to screw up.
Bottom line, you’ll spend almost as much effort faking the IRS out as it would have taken to earn the money honestly, and if you get busted you’ve got a shot at more financial penalties and doing time.
Just a bad gamble in my mind.
in extreme cases, the IRS has been known to follow a person around, count up all his possessions (fancy car, big house, boat, mistress-just kidding , etc) and then challenge the individual to prove all this came from his reported income. Not quite a cash deal, but certainly a tactic to use in tracking down cash (large amounts obviously).
Right, but that presumes that taxes aren’t paid. I do see however how the OP was phrased this might be a possibilty. Of course, if paid in cash one should follow all tax laws.