how do i file taxes if i get paid under the table

For many people who get a paycheck taxes can be a breeze. What happens though if you get paid under the table? What if you are only paid in cash? Do you have to report that income?

It is important to note that there is a difference between getting paid in cash and paid under the table. 

Typically an employee who is paid “on the books” will receive a salary and have taxes taken out from that. The amounts withheld will include social security, Medicare, federal income tax and in some cases state income tax.

When someone is said to be paid under the table it is assumed that the person receiving the money, or those paying, are not reporting the transaction.

When you get paid in cash your earnings typically are not reported to the Social Security Administration. The downside of this is that Social Security uses reported wages to determine the amount of money you can collect during retirement. Many people who routinely work under the table eventually get to retirement age and find out that there is little to no Social Security benefit available when they’re ready to retire.

Another drawback is that employers generally will pay unemployment insurance on employees who are on the books. This payment will allow eligible employees to collect unemployment benefits when they are no longer working at the business.

Difference Between Employee and Independent Contractor

There are times when being paid and not having taxes withheld is expected. This is true when you work and are paid as an independent contractor.  While some work scenarios may not be black and white one of the main factors in employee status is whether or not the person hiring has control over the way that you perform the job. 

Does the person or company decide when you work and how the work is done? Do they provide all the materials or tools to do the job? Do they offer you benefits? If the answer is “yes” to these questions it is likely that you’re an employee. The IRS has several tests to help determine if you are an independent contractor or an employee.

If you are determined to be an independent contractor the hiring business must provide you with Form 1099-NEC if you earn at least $600 for the year. The hiring business must also send a copy of that Form 1099 to the IRS.

Filing Taxes When Paid in Cash

Knowing that the hiring business will report your earnings is only one reason why you’d want to file a tax return. The other reason is that the U.S. Government requires that you report all your income (and that includes money that they may not be aware of.)

It’s not unusual for self-employed individuals to be paid in cash. Where things get problematic is when no tax return is filed or the income is not reported at all.  A self-employed person must file a federal income tax return if they earn at least $400 

Regardless of how you get paid keep a record of your earnings. At the end of the day it will be your responsibility to report the income that you earn.

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