Under-the-table payments are a common but illegal practice that involves employers paying wages in cash without proper tax documentation. While some workers may see immediate benefits, such as avoiding payroll deductions, the long-term risks and consequences are significant. Understanding the legal implications and seeking advice from an employment attorney or wage lawyer can help employees protect their rights and financial future.
By Brad Nakase, Attorney
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Answer: Yes, getting paid under the table generally qualifies as tax evasion. This is because neither the employer nor the employee reports earnings for tax purposes, circumventing state and federal tax requirements. Employers avoid paying payroll taxes like Social Security, Medicare, and unemployment insurance, while employees evade income tax obligations.
Legal Concerns: Tax evasion is illegal, and both employees and employers can face serious legal consequences if discovered. These include penalties such as back taxes, interest on unpaid taxes, and even potential criminal charges. Tax evasion undermines the government’s ability to fund public services and places employees at financial risk, especially if authorities investigate or audit the employer. If you find yourself in this situation, consulting an employment attorney can help you understand how to report your income and possibly negotiate reduced penalties. Additionally, a wage attorney could help in case you need to deal with the Internal Revenue Service (IRS) or state authorities.
Example: An employee working at a small auto repair shop is offered cash payments without any deductions or payroll documentation. The employee agrees because it seems simple and there is no deduction from their pay. However, when the IRS audits the business, both the employer and the employee face scrutiny for unpaid taxes. The employee gets notified to pay back taxes, fines, and interest, leading to financial hardship.
Impact on Employee: Getting paid under the table impacts the employee’s ability to receive unemployment benefits, workers’ compensation, or even disability payments in case of injury or illness. The employee lacks an official work history, which becomes problematic for applying for loans, housing, and establishing credit. Additionally, without proper reporting, the employee may owe a significant amount of back taxes, which can quickly accumulate with interest and penalties. Consulting with a wage lawyer can help determine the proper steps to mitigate these financial impacts and bring their tax obligations into compliance.
An employment lawyer can help navigate the legal implications of previously unreported income. A wage attorney can assist in dealing with tax authorities and help negotiate any back payments while reducing potential penalties. They can also guide on how to safely disclose income to avoid further consequences.
Answer: Yes, working under the table is illegal in California. California labor laws require employers to report all employee wages, pay applicable payroll taxes, and provide wage statements to employees. Paying or accepting under-the-table payments avoids these obligations, leading to potential civil and criminal penalties.
Legal Concerns: California law is strict about payroll reporting and worker protections. When employees agree to under-the-table payments, they forgo protections under California labor laws, such as workers’ compensation, unemployment benefits, and access to paid sick leave. Employers face significant penalties if caught, including fines, back taxes, and criminal charges for tax evasion. Employees can also face financial and legal repercussions. An employment attorney can guide you through understanding these consequences and how to bring the issue to light legally.
Example: A caregiver in California is paid in cash by her employer. There is no record of her employment, and therefore, she does not accrue unemployment benefits. When she loses her job, she is unable to collect unemployment benefits due to the lack of documented wages. Additionally, the California Labor Commissioner fines her employer for failing to maintain payroll records and failing to provide her with the rights guaranteed to workers.
Impact on Employee: By accepting cash payments without documentation, employees lose legal protections such as workers’ compensation for injuries on the job. They do not accrue Social Security credits, impacting future retirement benefits. Employees also risk being denied state labor benefits like paid sick leave, unemployment, or family leave. Without an official record, proving income for loans, leases, or even visa applications becomes impossible, limiting financial opportunities. Speaking to an employment lawyer or wage attorney could provide guidance on how to file a formal complaint with state authorities without losing legal rights or facing penalties.
Consult a wage attorney to ensure your employment rights are respected and to explore possible ways of correcting the employment record. An employment attorney can guide how to safely report the employer while protecting yourself from retaliation.
Answer: Getting paid under the table deprives employees of key employment rights and benefits, such as Social Security, unemployment insurance, workers’ compensation, and accurate wage records. It also leaves employees vulnerable to exploitation, as they cannot legally prove their earnings without official documentation.
Legal Concerns: Receiving under-the-table payments affects tax reporting and compliance with labor laws. Employees may have to pay back taxes with penalties and interest if the IRS finds out. Additionally, without official documentation, employees cannot seek benefits like unemployment, insurance, or prove income for loans. Legal guidance from an employment lawyer can help determine how to correct these errors and avoid further complications.
Example: A restaurant worker is paid entirely in cash with no deductions for taxes or Social Security. After being laid off, they attempt to file for unemployment, but their claims are denied because there is no record of their employment. This results in the worker having no financial support during the transition period, which places immense financial stress on them.
Impact on Employee: Employees paid under the table do not receive wage statements, which makes it difficult to verify correct wages or hours worked. These employees often miss out on tax benefits like Earned Income Tax Credits (EITC) and fail to accrue Social Security credits, which impacts their retirement. Furthermore, without pay stubs or tax records, securing a lease or applying for a credit card becomes extremely challenging. Consulting with a wage attorney can help clarify how to amend tax filings and potentially sue for missing benefits.
If you have been paid under the table, consult a wage lawyer to determine the best course of action for reporting your income and ensuring your employer adheres to labor laws. An employment attorney can guide you through the process of negotiating owed wages and benefits.
Answer: The IRS can discover unreported income through various means, such as an employer audit, whistleblower tips, or discrepancies in business income and expense reporting. While cash payments may seem undetectable, inconsistent financial reporting may trigger investigations, which can expose under-the-table arrangements.
Legal Concerns: Failure to report income is considered tax evasion and can lead to significant fines, penalties, and potential criminal charges. The IRS may pursue back taxes with interest, and employees may also face additional penalties for failure to report income. An employment attorney can help assess your current liabilities and find a path forward that minimizes risk.
Example: A freelance worker accepts cash for services, believing the income will go unnoticed by tax authorities. The employer is later audited, and discrepancies are discovered. The IRS identifies unpaid income taxes, and the worker faces a large back-tax bill, along with penalties.
Impact on Employee: Not reporting cash earnings can result in being liable for significant back taxes, interest, and penalties. If the IRS discovers this through an employer’s audit, the employee may face consequences that could jeopardize their financial standing. An employment lawyer or wage attorney could assist in negotiating with the IRS and potentially reducing penalties or establishing a payment plan.
Consult a wage attorney to understand how to properly report your income before the IRS identifies it. An employment attorney can help rectify the tax situation and potentially minimize penalties associated with underreporting income.
Answer: Yes, employees can face legal consequences for agreeing to under-the-table payments. These consequences include back taxes, penalties, and interest owed for failing to report income. Depending on the severity, employees may also face criminal charges, especially if the intent to evade taxes is proven.
Legal Concerns: Employees have a responsibility to report all income, even if the employer does not provide the proper documentation. Failing to do so is considered tax evasion. If employees knowingly participate, they share in the liability of breaking tax laws. Consulting an employment attorney can help employees assess the potential penalties and how to rectify unreported income issues before they escalate.
Example: A babysitter is paid entirely in cash and does not report the earnings. After the employer gets audited, the IRS uncovers unreported wages, and the babysitter is liable for back taxes and additional fines. This becomes a heavy financial burden, especially when accumulated interest is added to the back taxes.
Impact on Employee: Agreeing to under-the-table payments may prevent the employee from accessing unemployment benefits or seeking legal remedies for workplace injuries or wage disputes. Without tax records, employees lose access to public benefits like Social Security, potentially jeopardizing future financial security. Seeking advice from an employment lawyer can provide the proper approach to mitigate these consequences and ensure that taxes and liabilities are properly addressed.
If you have been paid under the table, consult a wage lawyer who can provide assistance in reporting past income. An employment lawyer can also explore any legal options available to mitigate the penalties for unreported earnings.
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