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Being Paid Under the Table

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Being Paid Under the Table  Reply with quote  

I am fairly young (19) and am working for a small start-up company. This is my first job, and I mainly do whatever technical/computer work is needed. I have come to find out, however, that after 4 months of being on the job, I am being paid under the table.

I know it seems stupid, and like a gross oversight, but since this is my first job, I didn't realize there was anything wrong with being paid in personal checks. I don't make much money here (between $60-$120 a week), but I supplement this income with student loans and the occasional music gig.

I am not on any kind of payroll (and its been explained to me that this would be inconvenient for the company because of how much it costs.) My boss, however, asked me a few days ago to start giving him invoices before he could pay me. This made me ask a few questions, which is how I found out I'm being paid under the table.

I didn't make enough last year to even have to fill out taxes, but the arrangement is scaring me. If I start doing the invoice thing, does that mean I'd be an independent contractor? If so, would I get all the blame if anyone looked back and realized I was making money under the table (even if it was not within my knowledge)? What kind of tax implications would this have?

I'm just trying to figure out what to do, and I really have no close sources of people who know enough about finances to ask...which is how I ended up in this strange situation in the first place.

Thanks for your time,
Post Tue Apr 05, 2011 8:59 pm
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Paid under the table  Reply with quote  

Legally you are obligated to report all of your earnings to the IRS. You should go to irs.gov and read the criteria they have and differences on being an employee (on payroll) and being an independent contractor. This makes a difference if a business is required to pay payroll taxes for people like you that they employ.

I would consult a tax professional and explain your situation with greater detail. If you are submitting invoices to your boss for your services: This would allow him to deduct the work he has contracted with you as a legitimate business expense and you could have just started (opened) your own business.

My advice: Keep all receipts on any of your business expenses and record all your mileage... Just in case.
Post Thu Apr 07, 2011 3:56 pm
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Sam, this is a fairly simple problem to correct. You are, and you have always been, an independent contractor. I think your employer was remiss in not explaining this to you. But his request now for invoices for your work seems to be his way of formalizing the arrangement. Your obligation is to learn what you need to do to fulfill you obligations to the IRS (and your country). It's not hard, millions of people do it, I did it. I'd suggest starting on the IRS web site with a search on "self employment".

If you didn't make enough last year to be taxed on, don't worry about what's past. Just get things squared away going forward and hopefully you'll be making enough to pay taxes. Laughing

Best wishes and good luck in your business. After all, you now own your own business: you. Smile
Post Fri Apr 08, 2011 5:28 am
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You are about to fully understand the true burden of the self employed - has anyone mentioned a 10-99 form?
Post Mon Apr 11, 2011 7:32 pm
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You may or may not be an independent contractor. Just because your "employer" is paying you by personal check or not withholding any taxes does not mean you are an independent contractor. The IRS will define if you are or are not an independent contractor based on the amount of "control" your "employer" has over your actions.

You need to go to IRS.gov and search for and read the information on what an independent contractor is. You may want to print this out and show your "employer" so they understand what it means. Do this asap so you don't get yourself into a difficult tax situation. Very Happy
Post Mon Apr 11, 2011 8:05 pm
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The exposure for incorrect classification is on the "employer" - not you. If he incorrectly classified you as a contractor, he will be liable for the unpaid FICA and Medicare.

Your responsibility is to claim the income you received, whether you get a 1099 or not. Also, even if you didn't make enough to pay INCOME tax, if you earned over $400 in 2010, you'd owe SELF-EMPLOYMENT tax. If it was under that amount, you would owe no taxes.
Post Tue Apr 12, 2011 10:52 am
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