Jump to content

Menu

Employers paying cash: when is it illegal?


Recommended Posts

My dd was offered a job by someone (who happens to be sort of a friend of mine), and this would be a perfect job for her. Very flexible hours, work she would like, etc. However, potential employer wants to pay her in cash.

 

I suspect this isn't legal, but I'm wondering what the law is. Obviously people pay cash for some services, like babysitting and mowing. What circumstances allow for paying cash and not paying workers comp/taxes/etc?

Link to comment
Share on other sites

Here in Canada it doesn't matter how you are paid, but if it's over $30,000/year than the person needs a GST number and taxes are charged. I give a receipt for the kids I watch and taxes are involved, but she still pays me in cash.

Link to comment
Share on other sites

You can be paid in cash for any job as long as you are properly reporting the exchange of money and paying the associated taxes.

 

If she makes over a certain amount, the employer has to report the 1099. And your daughter must file income taxes if she makes over the limit.

 

This is true even for babysitting, mowing lawns, or even trading goods/services....it is just that people don't do it.

Link to comment
Share on other sites

I'd find out how much money over the tax year and if your DD could be considered an independent contractor. (As an independent contractor she'd pay self-employment taxes.)

 

Now if it's an occasional/seasonal gig where she's not making significant money, I wouldn't worry about it. If she's an independent contractor, keep track of her income and expenses for taxes.

Link to comment
Share on other sites

Generally the employer pays taxes on behalf of the employee. But it is the employee's responsibility to see that the taxes are paid, hence leave and earning statements sent with each check.

 

People who do not have their taxes paid for them by their employer are required to keep up with their won tax debt. It must be reported yearly to the IRS and any taxes owed paid.

 

It isn't illegal to pay in cash, just more hassle for the employee.

Link to comment
Share on other sites

You can be paid in cash for any job as long as you are properly reporting the exchange of money and paying the associated taxes.

 

If she makes over a certain amount, the employer has to report the 1099. And your daughter must file income taxes if she makes over the limit.

 

This is true even for babysitting, mowing lawns, or even trading goods/services....it is just that people don't do it.

 

:iagree:

 

It's not the "paid in cash" part that is a problem - it's the implication that she will be "paid under the table" (or "off the books"), which is definitely illegal. Very common, but illegal.

 

The person paying the money in these situations is generally trying to avoid paying someone as an employee so that they can avoid payroll taxes and reporting requirements. If the payer thought the person doing the work was an independent contractor, they would just pay her regularly through the business as an IC, take the deduction for expense, and send her a 1099-misc at the end of the year.

 

If she is wanting to be above-board and legal, she needs to either insist on being an employee and paid as such (cash or not) or set it up so that she is a legitimate independent contractor and pays her own taxes on the money (better for the payer anyway, since he can then take a deduction and it is all legal). There are, however, whole tax novels devoted to independent contractor vs employee status (with the IRS leaning towards wanting to call EVERYone doing work for you as employee & the employers leaning towards wanting to call them IC).

 

As pp pointed out, those babysitting & mowing lawn & other type jobs are supposed to be reporting their income as taxable independent contractor income on their tax returns if it is over a certain amount.

Link to comment
Share on other sites

You can be paid in cash for any job as long as you are properly reporting the exchange of money and paying the associated taxes.

 

If she makes over a certain amount, the employer has to report the 1099. And your daughter must file income taxes if she makes over the limit.

 

This is true even for babysitting, mowing lawns, or even trading goods/services....it is just that people don't do it.

 

:iagree: The tax part is your daughter's responsibility if she is treated as an independent contractor or as an employee.

 

Even if the employer does not report the 1099, she is still responsible for paying taxes.

 

I have been paid through Paypal for many jobs (self-employed) and given a 1099. So being paid in cash is not illegal. When money is not reported, then there is a problem.

Link to comment
Share on other sites

 

As pp pointed out, those babysitting & mowing lawn & other type jobs are supposed to be reporting their income as taxable independent contractor income on their tax returns if it is over a certain amount.

Ok, what if it is under that amount? It's part time, and I know she'll make under $5000 per year. Maybe not even $3000.

 

When my other kids filled out the payroll paperwork, they were both exempt, and told they wouldn't have to file.

Link to comment
Share on other sites

Ok, what if it is under that amount? It's part time, and I know she'll make under $5000 per year. Maybe not even $3000.

 

When my other kids filled out the payroll paperwork, they were both exempt, and told they wouldn't have to file.

 

$600/year

 

Don't do it. The employer is trying to avoid part of their responsibility for taxes, paying Social Security, and workman's comp.

Link to comment
Share on other sites

$600/year

 

Don't do it. The employer is trying to avoid part of their responsibility for taxes, paying Social Security, and workman's comp.

 

Actually, over $600 is the amount that employers have to send you a 1099. Self-employment tax is payable on net earnings over $400.

 

There are, of course, special rules for all sorts of things - so it really depends specifically on your tax situation. In general, though, if you make over $400 in self-employment net earnings you need to file a tax return to report it. You will likely be allowed all sorts of credits (earned income credit, child credit, etc) so may end up paying no taxes - or getting money back! - but you are required to report it.

 

As far as children in general go, if they are getting money from employers through W2s then they likely fall below thresholds to file. If they are self employed, the same rules apply - they need to file if over $400.

Link to comment
Share on other sites

:iagree:

 

It's not the "paid in cash" part that is a problem - it's the implication that she will be "paid under the table" (or "off the books"), which is definitely illegal. Very common, but illegal.

 

The person paying the money in these situations is generally trying to avoid paying someone as an employee so that they can avoid payroll taxes and reporting requirements. If the payer thought the person doing the work was an independent contractor, they would just pay her regularly through the business as an IC, take the deduction for expense, and send her a 1099-misc at the end of the year.

 

If she is wanting to be above-board and legal, she needs to either insist on being an employee and paid as such (cash or not) or set it up so that she is a legitimate independent contractor and pays her own taxes on the money (better for the payer anyway, since he can then take a deduction and it is all legal). There are, however, whole tax novels devoted to independent contractor vs employee status (with the IRS leaning towards wanting to call EVERYone doing work for you as employee & the employers leaning towards wanting to call them IC).

 

As pp pointed out, those babysitting & mowing lawn & other type jobs are supposed to be reporting their income as taxable independent contractor income on their tax returns if it is over a certain amount.

 

Even if you do not make $600 a year to be reported on a 1099, the income is to be reported by the employee. We have an accountant and I have to tell him all of my small jobs (self-employed) that did not get a 1099. Whatever the employer does with his part of the income reporting (whether employee or contractor status) is the problem of the employer and the IRS. You can only control your own income taxes. Not getting a 1099 does not mean you don't report that income of less than $600 or whatever amount. So if your total comes to $900 from 4 small jobs less than $600, you should file and pay taxes.

 

OP, if you have questions about the tax behavior, don't take the job or consult a CPA.

Link to comment
Share on other sites

According to this table from the IRS regarding dependents, you do not even have to file a tax return if your unearned income is less than $950, your earned income is less than $5800, and your gross income is less than the larger of $950 or your earned income plus $300.

 

However, you must pay self-employment tax if you make more than $400 as a self-employed person.

 

Here is an article about who qualifies as an independent contractor and who qualifies as an employee. It's written to the employer.

 

Hope this helps.

Link to comment
Share on other sites

According to this table from the IRS regarding dependents, you do not even have to file a tax return if your unearned income is less than $950, your earned income is less than $5800, and your gross income is less than the larger of $950 or your earned income plus $300.

 

However, you must pay self-employment tax if you make more than $400 as a self-employed person.

 

Here is an article about who qualifies as an independent contractor and who qualifies as an employee. It's written to the employer.

 

Hope this helps.

Thank you! I googled but didn't find this. I didn't think she would have to file. It seems to me that if she were to take this job, she wouldn't be breaking the law, although her employer would.

 

I am going to talk to an accountant tomorrow,. Thanks everyone.

Link to comment
Share on other sites

Thank you! I googled but didn't find this. I didn't think she would have to file. It seems to me that if she were to take this job, she wouldn't be breaking the law, although her employer would.

 

I am going to talk to an accountant tomorrow,. Thanks everyone.

 

I'm sorry - I had to comment one more time in regards to this. If she took this job & knew that she wasn't getting a W2 from the employer (which he wouldn't, if he wasn't paying her as an employee) and she didn't file a tax return reporting that income then she *IS* breaking the law. The income legally MUST be reported to the IRS and it is her ultimate responsibility to make sure it is done. If it isn't W2 employee wages then it is independent contractor income & if she makes over $400 she is required to report it on a tax return.

 

The employer obviously would get in trouble, too, if he were paying her as an IC when she was an employee, or paying her under-the-table, and it was discovered - but that doesn't mean that she has no responsibility here.

 

You'll find in the IRS regulations that an independent contractor getting self-employment income is required to report it on their tax return REGARDLESS of whether the employer actually sends her the 1099 (which he is supposed to send if over $600).

 

By taking money that she knows is being given to her as an independent contractor (which is basically money for services done that isn't being given as an employee) and not reporting it, she is willfully under-reporting (or non-reporting) income received and is in violation of the IRS tax code.

 

Of course, if she were to get caught she could try and make a case that the employer should have been paying her as an employee, which is true, but she would basically be saying she had no idea that he wasn't, which is not true.

 

I'm a CPA, btw. :)

Link to comment
Share on other sites

$600/year

 

Don't do it. The employer is trying to avoid part of their responsibility for taxes, paying Social Security, and workman's comp.

 

This - the employer is attempting to avoid the responsibility of paying the apporpriate taxes for your daughter as an employee, and is placing the burden upon her for the full amount of social security taxes.

 

I don't know if it is worth it to your daughter or not.

Link to comment
Share on other sites

I'd find out how much money over the tax year and if your DD could be considered an independent contractor. (As an independent contractor she'd pay self-employment taxes.)

 

Now if it's an occasional/seasonal gig where she's not making significant money, I wouldn't worry about it. If she's an independent contractor, keep track of her income and expenses for taxes.

 

 

An employer can't just decide someone is an independent contractor. They have to meet certain guidelines:

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html/

Link to comment
Share on other sites

An employer can't just decide someone is an independent contractor. They have to meet certain guidelines:

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html/

She definitely couldn't be considered an independent contractor.

 

The income legally MUST be reported to the IRS and it is her ultimate responsibility to make sure it is done. If it isn't W2 employee wages then it is independent contractor income & if she makes over $400 she is required to report it on a tax return.

 

The employer obviously would get in trouble, too, if he were paying her as an IC when she was an employee, or paying her under-the-table, and it was discovered - but that doesn't mean that she has no responsibility here.

 

You'll find in the IRS regulations that an independent contractor getting self-employment income is required to report it on their tax return REGARDLESS of whether the employer actually sends her the 1099 (which he is supposed to send if over $600).

 

By taking money that she knows is being given to her as an independent contractor (which is basically money for services done that isn't being given as an employee) and not reporting it, she is willfully under-reporting (or non-reporting) income received and is in violation of the IRS tax code.

 

Of course, if she were to get caught she could try and make a case that the employer should have been paying her as an employee, which is true, but she would basically be saying she had no idea that he wasn't, which is not true.

 

I'm a CPA, btw. :)

 

Thank you. This makes sense. I'm really dense when it comes to finances. :)

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

 Share

×
×
  • Create New...