To “pay someone under the table,” an employer is paying an employee cash without deductions in order to avoid paying taxes. This means that the business isn’t deducting taxes from the employee’s paycheck, and as such, the Internal Revenue Service (IRS) is unaware of the employee and her employment status. It also means that social security taxes, unemployment insurance, and workers’ compensation are also not being paid.
What are the Consequences for Illegally Paying Employees “Under the Table?”
There are many reasons employers give as to why they pay their employees under the table. Very often, an employer doesn’t want the hassle of doing payroll every two weeks, or they say they can’t afford payroll taxes and insurance. Regardless of the reason, paying someone under the table is illegal.
Many employers believe they will not be caught for illegally paying employees, but the IRS doles out roughly $4.5 billion in payroll tax penalties annually. The penalties for paying wages under the table can be much worse than just paying back what is owed. The IRS prosecutes these cases, many of which net a prison sentence, along with severe financial penalties.
For instance, a business owner in New Jersey paid his employees under the table in order to avoid paying $152,000 in payroll tax from 2005 to 2008. He was caught, and sentenced to two years in prison along with having to pay the IRS $1.8 million. Additionally, businesses can lose their operating license, future loan and credit applications may be affected, and civil charges may be filed on top of criminal charges.
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What are Some Defenses Employers Have to “Under the Table” Charges?
An employer who is accused of paying employees under the table would be wise to consult an attorney. The IRS takes willful fraud seriously. However, if it can be shown that the employer was acting in genuine negligence, they may be able to pay a fine rather than spend time in jail. Paying employees in cash is perfectly fine, but the employer must be compliant with payroll taxes, unemployment insurance, and workers’ compensation laws.
People make mistakes, and mistakes are not necessarily fraud. An experienced attorney may be able to defend against an IRS investigation, resulting in a repayment of money owed and a fine. It is also possible to challenge the IRS based on insufficient evidence, as well as an elapsed statute of limitations on tax evasion (usually six years).
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Do I Need a Lawyer?
If you are facing an IRS investigation regarding paying employees under the table, you should speak with a tax attorney as soon as possible. Defending against the IRS on your own is incredibly difficult, and having an experienced lawyer by your side is invaluable. Your attorney will advise you of your rights, help you build your case, and represent your best interests in court.