Understanding the Difference of Being Paid Under the Table and Being Paid in Cash Know
For starters, you have to first understand that you are not breaking any laws by accepting payment in cash. However, you are breaking the law by not reporting it. Being paid in cash can only be legal when your employer is tracking all the payments and adheres to employment and tax laws. This also means that you should record income along with filing taxes for under the table cash.
Certainly, getting paid under the table is convenient, well that is because you don’t have to record your income. And with no record of your income, you are not liable for filling taxes for under the table cash.
The same goes for your employer. However, you have to understand that while this situation is a win-win for you – there is one other party that is not content at all – and that is the IRS. When the IRS does not get the money they are owed, things can get immensely troubling for you and your employer.
Moreover, it is vital to understand that being paid cash under the table will not exempt you from paying your taxes. As a matter of fact, it will make filing for your taxes even tougher. If this situation holds true for you, here are things that you need to do to avoid having a fall out with the IRS.
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Knowing The Type of Employment You Are In
Understanding the type of employee you are matters a lot. Whether you are an independent contractor or an employee will help determine the person responsible for withholding your income tax. It is also vital to understand the type of documents required for filing taxes for under the table cash.
The organization you work for designates how you work and where you work, gives you all the things necessary to do you work, provide benefits like a paid vacation to you, and offers a stable salary that is your primary income, you are an employee. With this definition, even if you are working as a part time waiter, you will still be considered an employee in the eye of the IRS because your employer designates how you work and dictates when you should come for work.
On the other hand, if you use your own tools and equipment to do the job, decide how you will do it, and have the advantage of working with different clients, you are known as an independent contractor. Sure, both types of employees can be paid in cash – however, if you are an employee, the responsibility of withholding and recording your taxes lies with your employer. As an independent contractor, you are fully accountable for filing and withholding your own taxes and income.
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Be Sure to Track Your Income on Cash Payments Throughout the Entire Year
Track all your cash payments and income every month of the year. And this is even more important if you have doubts that your employer is not adequately tracking your payments under the table, or if he is trying to get away from paying his taxes.
All you have to do is essentially create a month to month spreadsheet where you can record and track all the income you receive on a month to month basis. You can note the date of payment, mention the name of the person who made the payment and the total amount paid to you.
On a seperare note, if you are full-time employee or work in a position where you are able to earn more income by getting tips (for example a waiter), it is pertinent that your employer suggests that you accurately track all the amount you make apart from your fixed income (the IRS will require this information).
The best way to go about it is to check and see if there is any software you could use at your workplace to keep a track on how much you earn in tips every day. Even better, see if you can access an electronic system of accurately tracking the amount of tips you earned at the end of your shift.
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Get Your Employer to Provide You With a W-2 Form or the 1099-MISC
When the tax season draws near, it is mandatory for your employer to provide you with a W-2 Form (if you are indeed an employee). If not, or if you are an independent contractor, and are paid over $600 throughout the year, your client must provide you with a 1099-MISC Form (if you have been paid via check, cash or bank transfer).
You must have these forms before the start of the tax season of the following year, which is up till January 31. Send your employer or client a reminder if they don’t send you the forms. Discuss that there are penalties they would have to bear by the IRS if they don’t send you the forms on time.
Do I Have to Record and Report The Money I Get Under the Table?
Quite simply yes, filing taxes for under the table cash is mandatory as well. However, depending on how much you earn under the table, you have three different tax forms you must fill, which are:
- Form 1040EZ
- Form 1040A
- Form 1040
In addition, you also have to report any subsidiary income you earn such as the tips you get (if the money was not reported by your employer). In all, it is important to consult a professional tax consultant if you want to a full understanding of your tax situation. It is also helpful to visit the IRS website.
Summary and Tips
You don’t have to worry about being paid in cash, as long as you pay your taxes and as long as your employer adheres to all the tax and employment laws and records all his payments to you.
For example, you are standard employee, your employer must provide you with a W-2 Form when the time comes to file for your taxes. And if you are a independent contractor, you are going to have to file for your own taxes (if you are paid over $600) by filing the 1099-MISC.
If you’d like to learn more about tax laws and your business, we at Akif CPA are here to help. Learn about our services here.
Do you have unique issues or concerns not discussed in this blog then please contact us by email or phone. We are here to help.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Akif CPA will not be held liable for any problems that arise from the usage of the information provided on this page.
