How Do I File Taxes if I’m Paid Under the Table? – The Accountants for Creatives®

Getting paid under the mesa can feel like a win-win situation. After all, with no record of your income, you ’ re not creditworthy for paying taxes on it—and neither is your employer—right ? The problem is, person is losing in this position : the IRS. And when they IRS loses they get huffy. And audit. And fine .
indeed, no, getting paid under the table does not give you a get out of imprison loose card when it comes to paying your taxes. In fact, it just makes paying them harder .
If you ’ re in this position, here ’ s how to make it a easy as possible on yourself and ensure you ’ rhenium not in the ill-timed in the eyes of the IRS .

Know the Difference Between Getting Paid in Cash and Getting Paid Under the Table

First off, it ’ south deserving noting that getting paid in cash international relations and security network ’ t illegal, but getting paid under the table is.

What ’ s the difference ? Well, getting paid in cash obviously means you ’ ra being paid with physical dollah dollah bills. But this can still be considered legal if your employer is complying with employment laws and by rights tracking your payments for tax purposes. This means that when they pay you they should be keeping a record of it and, depending on what character of employee you are ( more on that in a minute ), withholding taxes and paying employer taxes, like Social Security and Medicare .
Getting paid under the table means you ’ ra getting paid in cash and your employer international relations and security network ’ thyroxine keeping a record of it, probably because they ’ re trying to save money and clock by not having to do all those things .
When you start a new job and learn you ’ ll be paid in cash, ask your employer whether they ’ ll be tracking your income and withhold taxes. This will help you understand whether they ’ ra being above the bar or not, and help you know how to prepare. If you suspect your employer is paying you under the table, you might want to nicely remind them of the likely repercussions ( though I understand this could be awkward when you ’ re starting a new job ! ) .

Understand What Type of Employee You Are

Knowing whether you ’ re considered an freelancer contractile organ or an employee is crucial for figuring out who is supposed to be responsible for withholding your taxes, and which documents you should expect come tax time .
While this is a bite of a grey area ( and if you ’ rhenium diffident, it doesn ’ thymine pain to check with an accountant ), it generally comes down to how a lot see over when and how you do your function the party has .
If the company says when and where and how you do your work, provides you with the tools you need to do the job, offers any screen of employee benefits to you ( like paid vacation ), and provides ongoing work that ’ s your independent source of income, you ’ re credibly considered an employee to the IRS. For exemplar, even if a waitressing job is part-time, you ’ re credibly still considered an employee because your employer tells you when to be at study and dictates how you should do your job .
If you decide when and how to complete a plan for this subcontract, provide your own tools and materials, and have the opportunity to pick up many clients, you ’ re likely an autonomous contractile organ.

Both may be paid in cash for their sour, but if you ’ re an employee more of the responsibility is on the employer to report and withhold taxes, whereas if you ’ re an freelancer contractor that duty falls on you ( including paying quarterly taxes since money international relations and security network ’ triiodothyronine being withheld throughout the class ) .

Track Any Cash Income Carefully Throughout the Year

Whatever type of employee you are, make certain to carefully track any cash income throughout the class. This is specially authoritative if you think that your employer international relations and security network ’ deoxythymidine monophosphate accurately tracking or is trying to get away with paying you under the mesa .
This can be ampere simple as keeping a spreadsheet to track cash income anytime you receive it. I recommend noting the date, who paid it to you, and the come .
If you ’ re an employee who makes a set of your cash income through tips, your employer should require you to track and report it to them, since the IRS requires it. See if your work has an electronic system for reporting tips at the end of each shift key. If not, talk to your boss about how they handle monthly report. If they do nothing, good track it for yourself. Yes, it ’ s a bit of a pain, but less of a annoyance than getting audited .

Ask Your Employer for a W-2 or 1099-NEC

When it comes to the taxing hour, you should expect to get a W-2 from your employer if you ’ re considered an employee, or a 1099-NEC if you ’ re considered an freelancer contractor and they ’ ve paid you over $ 600 throughout the naturally of the year, if you ’ ra paid via cash, determine, or bank remove .
You should receive these forms for the comply tax class by January 31. If you don ’ deoxythymidine monophosphate, this might be another good time to ask your employer about it and gently remind them of the penalties for not correctly tracking and filing.

If your employer still balks and refuses you these documents, you may think about going to the IRS to let them know something shady is going on, but I ’ five hundred recommend consulting with an accountant first to make sure what ’ second going on is in truth illegal. But you may besides choose to stay silence and not get into that mess—understandable ! careless, you have one more option to make indisputable you don ’ t take the fall with them .

File Your Cash Income as Miscellaneous Income

even if your employer refuses to properly reputation these payments, you should report that income yourself therefore if they always do get in trouble, you can show you paid your taxes bazaar and square .
fortunately for you, you ’ ve made it slowly on yourself by tracking your cash income throughout the class. total this up and file it as assorted income using Form 1040, Schedule C .

Abridged by Amy

  • It’s not illegal to pay someone in cash, but it is illegal to pay them without tracking the income and paying taxes on it.
  • If you’re an employee, you should expect to receive a W-2 from your employer at tax time—if you’re an independent contractor who’s been paid over $600, you should expect a 1099-NEC.
  • If you don’t get these documents, track the income yourself and file as miscellaneous income on Form 1040, Schedule C.