Under the table employee payments, or paying someone under the table, means that the employer pays a worker cash and does not make the required legal deductions from their pay. Local, state, and federal laws require that employers make deductions for income taxes, Social Security taxes, and Medicare withholdings.
There may also be other deductions that employers have to make, including wage garnishment, withholdings to pay past due child support, and other legitimate debts. When a worker is paid under the table, it means that the Internal Revenue Service (IRS) is not aware of that worker or their employment status.
Making payments to workers under the table also means that unemployment insurance, workers’ compensation insurance premiums, and Social Security taxes are not being paid.
In California, What Are the Consequences for Illegally Paying Employees “Under the Table?”
There are numerous reasons why an employer may pay a worker under the table. In addition, an employer may desire to avoid the expense and hassle of completing payroll every two weeks.
An employer may also claim they cannot afford insurance or payroll taxes. Regardless of the reason that an employer wants to pay workers under the table, it is illegal.
An employer may think they will not be caught when they pay workers under the table illegally. Every year, the IRS collects around $4.5 billion in penalties for the non-payment of payroll tax.
The penalties an employer may face for paying workers under the table may be much more expensive than simply paying back what they owe. The IRS will prosecute many of these cases, which can cause an offender to face time in prison and severe financial penalties.
An employer can also lose its operating license, may have issues with future credit and loan applications, and may also face civil charges on top of criminal charges, including a possible charge of tax evasion. If an employer or worker has any questions or concerns about paying workers under the table in California, they should schedule a lawyer consultation.
What Are Some Defenses Employers Have to “Under the Table” Charges?
Any employer that has been accused of paying an employee under the table in California should reach out to a lawyer. In situations where the employer was genuinely negligent, it may be possible for them to pay a fine instead of going to jail.
It is perfectly acceptable for an employer to pay a worker in case. However, that employer has to comply with local, state, and federal law requirements for withholdings and payroll taxes, workers’ compensation laws, and unemployment insurance.
Sometimes, humans make mistakes and these mistakes are not always fraud. A California lawyer can defend an employer during an IRS investigation and negotiate their case so they only have to pay what they owe and possibly a fine.
A California lawyer may also be able to challenge the IRS if they do not have sufficient evidence. A lawyer may also be able to show that the six-year statute of limitations on tax evasion in California has passed.
How Do I Report My Employer for Paying Under the Table in California?
Employers are required by law to withhold taxes from a California worker’s wages as well as to make the necessary payments to local, state, and federal tax authorities. An employer is responsible for several employment taxes, such as:
- Federal, state, and local income taxes
- Federal and state unemployment taxes
- Social Security and Medicare taxes (FICA tax)
- State-specific taxes
Employers have to withhold local, state, and federal income taxes, Medicare taxes, and Social Security taxes regularly. An employer also has to make contributions to state unemployment funds, Medicare, Social Security, and other California-specific taxes.
Employers should set aside the funds they withhold from the workers’ pay as well as any taxes they have to deposit with government agencies. Payroll taxes will need to be deposited with the proper authority, the IRS, according to the required depositing schedule. Typically, the schedule required for depositing federal income, Social Security, and Medicare taxes is monthly or semiweekly.
The schedule an employer should follow for depositing is based on a four-quarter IRS lookback period. Employers should deposit federal unemployment tax funds each quarter of a year, or every three months.
A California employer should consult with the state unemployment agency and taxing authority to determine the schedule for making their deposits. Although these requirements can be complex and overwhelming, they should not be ignored.
An employer can get help from a payroll service to help take care of and keep up with these responsibilities. In addition, a lawyer can help explain the requirements an employer has to follow for their specific business in California.
A person or entity can be reported for failure to comply with tax laws. Form IRS Form 3949-A, Information Referral, can be used when a person or entity is suspected of not complying with applicable law. This form must be submitted by mail or online; it will not be accepted over the phone.
The identity of whoever reports these suspicions will be kept confidential. The reporter will also not receive updates, as tax returns are considered confidential.
Examples of conduct that is considered tax fraud include:
- Failing to make required withholdings
- Failing to comply with tax laws
- Claiming false exemptions or deductions
- Paying kickbacks
- Failing to pay taxes owed
- Failing to report income
- Submitting false or altered documents
- Engaging in organized crime
The IRS will collect penalties when payroll taxes are paid late. The chart that the IRS follows for collecting these late fees is available to the public.
For example, if the payment is 1 to 5 days late, a 2% penalty on the amount owed is imposed. If the payment is 16 or more days late, the penalty will be 10% of what is owed.
A penalty is not the only issue that an employer may face if they miss a deadline for paying payroll taxes. In addition, the employer will be required to pay interest on the unpaid amount that they owe, which may range from 3 to 6 percent.
There may also be additional penalties an employer faces for late reporting. If an employer does not pay the IRS what is owed, the IRS has the right to place a tax lien on their real and personal property, such as their house or car.
If the IRS believes that a person or entity is evading taxes on purpose, they can face tax evasion charges. If convicted, they may face fines of $100,000 for a person or $500,000 for a corporation. They may also face imprisonment for up to five years.
Do I Need a Lawyer for Paying Employees Under the Table in California?
If you, as an employer, are facing an investigation from the IRS for paying workers under the table, it is important to reach out to a California employment lawyer as soon as possible. It can be hard to present a successful defense against the IRS on your own, so it is essential to have legal help.
Your employer lawyer will give you advice about your rights, help you present your case, and represent you when you have to appear before the IRS or in court. Use the free lawyer matching services provided by LegalMatch today to get started finding a lawyer to help you with your IRS concerns.
