Except for some very narrow exceptions, such as children holding summer jobs in which they don't make much money, and truly independent contractors, working "off the books" or "under the counter" is fraught with legal, tax and technical difficulties.
1
What is Public Awareness of This?
Welcome to the world of the multi-billion dollar underground economy. The IRS knows that it exists. Congress is aware of it. So is just about every American who ever asked if someone would lower the price of something if they were paid in cash
2
Drawbacks of Working “Off the Books”
Off the books sounds like a great deal until you examine the specifics. If you aren't being paid on the books, that means that:
● You aren't getting credit within the social security system for the requisite number of quarters that you must have in order to receive full benefits at retirement.
● If you fall and hurt yourself on the "job", there's no record -- and if it's your fault, worker's compensation isn't a likely remedy because you weren't working (no record of it).
● There mere fact that you work 'off the books' doesn't mean that you don't have the legal obligation to pay taxes on your earnings. When the IRS catches you, the penalties for failing to report are yours. (The failure to withhold is a penalty that belongs to your employer).
3
Who Can Work “Off the Books”
Now the mere fact that tax is not withheld from your pay
check, or that you are paid in cash, is not in and of itself,
evidence of an intent to violate the law. There are some instances
where certain types of salaries or wages are specifically excluded
from "wages" for purposes of income tax withholding.
☞ Newspaper carriers under the age of 18 who deliver to their customers, for example, are not required to have monies withheld either from the payment by their employer, or from the tips received from their customers.
☞ Casual employment (less than $50 paid and less than 24 days worked in a particular quarter) requires no withholding.
☞ Cash or non-cash tips of less than $20 a month requires no withholding under the law.
4
Unexpected Consequences
There is another totally different side of earning the income
in this unique way which becomes apparent the first time that you
are involved in an automobile accident and apply for no fault
benefits. The insurance carrier inquires as to lost wages that you
may have. They will only pay the lost wages that are actually
declared -- not those that are off the books.
☞ If you bring a personal injury claim of any kind and ask for damages for economic loss (loss of income), the income tax returns that you file are going to be the basis for the evidence that leads to recovery in this area. "Off the book" income simply never shows up in the first place-- and the consequence is that you don't get compensated for the loss when it occurs.
5
Trouble with the IRS
Internal Revenue Service agents have a variety of ways to catch the big fish in the "cash" situation. They can actually do a "net worth" prosecution, which is a criminal action that starts with a premise of what you had at a certain point in time, and then show what you have now. The difference is your income, that which tax wasn't paid on. Remember: Al Capone didn't spend time in jail for the bootlegging, murders, and mayhem that he is alleged to have caused; he spent the time because of an income tax charge that he simply didn't count on.
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