According to the Cleveland.com website, America is a land hosting two economies operating at the same time. In addition to the nation's formal economy, a growing underground or shadow economy is also hard at work and includes people being paid off the books. Informally known as under-the-table work, off-the-books employment can occur when you earn income for work and don't pay required taxes. Failing to correctly report all income earned can lead to trouble under some circumstances.
The Underground Economy
An underground economy may include legal businesses, such as employers in construction and service industries that intentionally and illegally don't withhold taxes, and illegal activities, such as drug dealing. Many legitimate businesses don't withhold taxes from employees' earnings, such as real estate brokers employing real estate agents who work as independent contractors. Employers and employees trying to avoid tax withholding and payment, though, are engaging in true underground economic activity. Trouble that can arise from working under the table includes IRS tax issues.
IRS Tax Troubles
With few exceptions, the Internal Revenue Service requires you to report all income you earn, including income from your employer. Employers also generally must withhold taxes from employees meeting certain IRS guidelines as well as withhold employees' taxes. Normally, unless you're an independent contractor, your employer will withhold required taxes from your pay. Failing to report all income you've earned could result in you paying stiff IRS penalties.
Social Security Issues
Many states and municipalities also impose taxes on income earned by workers, and they too look askance at off-the-books employment activities. Also, when you work off the books, you're not earning credit toward Social Security and Medicare retirement benefits. Plus, if you're receiving under-the-table pay from your employer, you may not be entitled to worker's compensation benefits if you're injured on the job. Insurance companies also only pay lost wages benefits on documented earned income, not under-the-table wages.
Under the Table Employment
Forbes' Kelly Phillips Erb, an attorney, advises never to accept an offer from an employer to work off the books. Worse, according to Erb, under-the-table payment arrangements frequently end badly for employees. Erb states that employers caught paying employees under the table typically try to shift as much blame to employees as possible.
- Cleveland.com: 'Underground Economy at Work' as Number of Long-Term Unemployed Grows; Helps Account for Discrepancies in Fiscal Picture
- Forbes: Ask the Taxgirl: Getting Paid Under the Table
- Gaebler.com: Not Paying Payroll Taxes
- Law Office of Daniel Cuppett: Why You Shouldn't Work Under the Table
- AOMC Online Newsroom: Working "Under the Table" - A Tempting and Dangerous Trap
- Thinkstock/Comstock/Getty Images