Money Under The Table: Your Options

If you’re working for a small business or for an individual, there’s a chance you can get paid under the table. At first blush, it sounds like a good deal. You won’t have to pay either federal or state taxes — you won’t even have to pay Social Security. You can keep your hands on often as much as a third of your paycheck, just by forgetting to tell Uncle Sam.

Problems Hiding Under The Table

But while getting money under the table may sound like a good deal, it can work out as a pretty poor option. First off is the obvious problem: if the IRS finds out that you haven’t been reporting all of your income, you can face all sorts of penalties and problems.

Even worse, though, you can lose money even if you aren’t caught. Consider how the government is planning to provide money to individuals for the stimulus package: quite a bit of it is through tax credits. If you aren’t filing a tax return, you’re missing out on that money. You’re also ineligible for unemployment benefits if you don’t have income on the books — and a lack of income can affect just what kind of Social Security benefits you will be eligible for down the road.

Coming Clean at Tax Time

Announcing to the IRS on April 15 that you made a whole bunch of money that you didn’t previously tell them about can be problematic: that particular government agency is going to want a share. It’s worth noting, though, that the amount may not be as bad as you think. Just how much you made is a factor, of course, but there are plenty of deductions and credits that can help drop the taxes you might owe.

You might want to talk to your employer before declaring income, of course: they may be happy to hear that they can actually write off your salary as a business expense once you’re out from under the table. However, it will mean some paperwork on their part.

The Other Option

There are plenty of people who work under the table indefinitely. It certainly is an option, albeit frowned on by the IRS. It can cause some problems in completing paperwork in other areas, of course. If, for instance, you want to set up a retirement account, you can be sure that sooner or later that the government is going to ask you where your deposits came from. It’s worth remembering, though, that there are plenty of government budget shortfalls right now. Especially on the state level, tax agencies have been told to make unreported income a priority in the coming year.

While you can probably still get away with not reporting a few side projects, it’s certainly going to get harder to avoid telling the IRS about your main job. It’s worth considering whether the risk of penalties are really worth keeping that portion of your paycheck that would otherwise go to the government.