Getting paid “under the table” means an employee is paid straight cash for their services. Many people may not see any wrongdoing in this practice, with some even considering it the norm in their particular industry. However, “under the table” payments, especially without proper documentation or employee documentation, constitutes a form of tax invasion. Businesses and employees avoid paying income tax with this sort of payment. Even though the savings are immediate since you will not be paying income taxes, there are very real and dire consequences when an employee is paid out of the boundaries of the Internal Revenue Service.
Why Do Businesses Do It?
- Skip over taxation. Depending on the type of employment and local laws, income tax works on a progressive rate – which means, that their rates of implemented taxes depend on the taxable income, increasing as the income increases. Paying “under the table,” executes payment without the incremental tax rate. That means more money for the business as well as employees.
Is Paying “under the Table” Illegal?
The short answer is yes – there is a real chance that you can be criminally prosecuted for tax invasion. Not only will you have to pay the taxes back that are owed to the IRS, you can also face several years in jail and several thousand dollars in fines. This also directly impact the livelihood of the employees – they will have less Social Security benefits, workers compensation, and insurance companies will execute investigations that may ban the individual from proper compensation. This is, of course, outside of the penalties and the jail time that they may have to serve.
Follow the rules and the tax regulations set forth by local laws. To ensure that the proper tax rate is implemented onto your employee’s paycheck, make sure to use an HR compliance suite that will streamline the process and mitigate human errors that can potentially result in a disastrous inquiry by the IRS.