Today, everything is regulated to some degree, including how you get paid and how you pay those who work for you. High tax rates for individuals and businesses alike incentivize "under the table" wages that are off the books. In a tough economy, paying or receiving under the table wages can be appealing. There are several benefits to under the table pay. The IRS requires all income be claimed for tax purposes. In most cases, when an employee is on pay roll, their earnings will be automatically sent to the IRS and so income can't be hidden. When paid under the table, income isn't as easily tracked by the IRS. Individuals may not want to report under the table income to avoid paying taxes on it. Similarly, by paying employees under the table, employers too may avoid payroll taxes and other costs associated with having an employee on the books, like insurance and benefits. It may also be a way for small businesses to take on extra temporary help without the process of formally hiring someone and putting them on payroll. Overall, it allows for less paperwork and less hard earned money you have to give up. Despite these benefits, there are consequences for receiving or paying under the table wages, both legal and financial. People who do not report their income may run in to trouble when applying for a service or benefit that requires income verification. In some cases, for example when applying for a loan, income verification is strict and income must be demonstrated on federal tax returns. Also, certain benefits determined based on reported income and paid in to by employees, like unemployment or social security disability, can be denied. Not reporting income to avoid paying taxes on it also has a third party affect on the community. The intent of the taxes is to help support and fund things like schools, law enforcement and public parks. Unfortunately, taxes tend to weight heaviest on those who already are struggling financially. Under the table wages have long been in practice. In some work environments or industries, under the table wages may be a common practice. Food service workers, entertainers and bar tenders may find it easiest to be paid in cash at the end of every shift because much of what they make comes in cash tips. Similarly, anyone making income from illegal activities may find it in their best interests to leave income unreported. Most of what they make will be in cash anyways. You may even be encouraged or pressured to take your wages under the table and not report them but it is nevertheless against the law. All employers must report wages paid to employees and other workers. Employees or workers must report all income truthfully on their taxes, whether or not their employer does. Failing to report income truthfully can be considered tax fraud and will be criminal prosecuted as any other tax fraud would be. You could face up to a year in jail or prison and up to a $20,000 fine or even both. For tax crimes, you will also have to cover the costs of the prosecution process and a potential civil tax penalty. These costs can add up to a staggering amount. Under the table wages are illegal in most cases however some individuals and businesses still adhere to this business model. In absence of an audit or other investigation or evaluation by the IRS, tracking under the table wages paid or earned is very difficult so many may get away with it. In any case, individuals and business alike can be audited and then would have to face the harsh penalties of hiding income earned or paid. Furthermore, employees are entitled to see itemized pay roll records when they request it and should be given statements which each pay period denoting information about the payment. Failing to do so could result in being reported to the Labor Commissioner. It generally doesn't pay to take all your wages under the table or pay all your employees under the table. Employees are cheating themselves out of benefits they are entitled to as pay rolled employees and businesses are putting a lot at stake when not follow state business regulations.
Have you or a loved one recently been caught not reporting under the table income or not putting employees on pay roll? Criminal defense attorney Christopher Martens knows how to best advise you in this scenario, potentially saving you time, money and stress. Serving the Visalia and Fresno areas, The Law Offices of Christopher Martens can provide expert criminal defense counsel. Call our office at 559-967-7386 or email us at [email protected] for a free consultation.