My Employer Pays Me in Cash. What Do I Need to Know?

It’s perfectly legal to receive compensation from your employer in cash. It’s fast and convenient, so even employees without bank accounts can receive payment for their work.

However, cash payments trigger questions and complications. You and your employer must both report payments and wages on their state and federal tax documents. Failing to do so can result in significant penalties.

What should you know if your employer pays you in cash?

What Do You Need to Know about Reporting Your Wages?

Any employer that pays you in cash must pay their required percentage of your Social Security and Medicare taxes. Cash payments have the same requirements as checks, direct deposits, or any other payment method.

In addition to Social Security and Medicare, employers must also remit quarterly tax payments based on their federal and state obligations. Employers use these payments as tax deductions, just as they would non-cash payments.

And just as you would if you received payment via direct deposit or check, employees must pay their required payroll and income taxes. These taxes are usually withheld from your paycheck, but they can also be held back in cash payments.

If you aren’t sure if your employer is doing this, ask if they are holding back taxes on your gross earnings. Request documentation of this. If they are not, you’ll be responsible for paying what you owe. Furthermore, it will likely include a penalty when you file your income tax return for the previous year.

What Happens If Your Employer Doesn’t Meet Their Payroll Tax Obligations?

If your employer pays you in cash and fails to meet their bookkeeping obligations, they could face fines and criminal charges. Some people call this “paying employees under the table” and it’s illegal. It’s a practice that might seem beneficial to you and the employer. However, it can create a lot of problems when the IRS discovers it is happening.

Can You Get in Trouble If Your Employer Pays You Under the Table?

As tempting as it might be to accept under-the-table compensation from your employer, it creates a less-than-ideal situation for many people. When you leave income off of your tax return, the IRS considers it tax evasion. When the agency discovers what you’ve done, you’ll face still penalties and possibly worse.

Furthermore, should you lose your job, not having a paper trail linked to your income makes it difficult to file an unemployment claim. Likewise, if you are injured while doing work for which you’re being paid under the table. Cash payments put your workers’ compensation claim at risk. Not to mention the personal financial problems it creates, like making it difficult to receive credit approval.

Not every employer paying employees under the table is doing so to evade the system. Many don’t realize that failing to keep accurate records, withhold payroll taxes, and meet their payment obligations is a problem. If they are handling payroll on their own, especially if they are new business owners, they might not realize they are doing anything wrong. They assume as long as they are paying their employees and their employees are happy that it’s ok.

If you suspect your employer isn’t meeting their payroll obligations or you have concerns you could be held responsible for an issue if your employer is paying you in cash, it’s important to speak up. A tax attorney can answer any questions you have regarding your responsibilities and they can explain your employer’s responsibilities.

If your employer is trying to game the system and has been resistant to answer your questions, it’s important to take action. The last thing you need is scrutiny over your employer’s unwillingness to make things right. For more information or to discuss your concerns, contact Borrelli & Associates, P.L.L.C. to schedule a free consultation.