An Economy Under The Table

When you think of a tax cheat you most likely think of some rich fat cat taking advantage of loopholes and offshore accounts.  The truth is there all around us, in forms you’d never expect.

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Just the other day I was out having lunch with a friend when I overheard a waitress having a conversation with the table next to me…  “The problem with this country is the rich aren’t paying their fair share”

When I heard this I nearly spit out my lemonade across the table.  While this young lady is certainly entitled to her opinion this is definitely a case of the pot calling the kettle black.

Waitresses, babysitters, maids… all lines of work in which the main type of payment is cash, who usually under report or don’t report their income at all. Making money under the table can seem like a dream come true for a worker. You don’t have to give Uncle Sam their cut and the worker keeps it all for themselves.  Though, is it as harmless as you think for both them and us?

It’s really all how you look at things. If instead of waitress, babysitter and maid I said undocumented worker, freelancer, and tax cheat your opinion of getting paid under the table might have been different.

In truth both sets of descriptions are correct. People who get paid under the table, in cash, without reporting their earnings to Uncle Sam are both babysitters and tax cheats.

The reason people do this is quite clear, tax avoidance. Income taxes, social security and any state taxes can easily eat up one-third of a laborer’s fee.

Other times people do work off the books so they can keep their government benefits. For example, people receiving disability or benefits from the government are often put on income restrictions. Meaning that if they earn over a certain amount of money each year they will lose their government assistance checks.

But before you go and ask your employer to start paying you in all cash you should know it’s not all roses when it comes to undocumented income. Many freelance workers will tell you’d they’d rather pay taxes then risk being caught.

Having income that doesn’t show up on your tax returns makes it hard to qualify for any kind of loan. Car loans and home loans require you to show tax returns from previous years. Many freelancers run into problems when they show tax returns with low income. Auto lenders, brokers and mortgage people will not just take your word for it that you can afford it.

Most employers refuse to pay workers under the table not only because it’s illegal, but also because it does not benefit them in any way. Businesses can deduct any money they pay you as an expense on their taxes thus reducing their own tax bill. If they don’t submit your information they not only can’t deduct that expense, but they can also be fined and reprimanded by the IRS if caught. Unless a worker significantly cuts their fees this is not a viable option for most employers.

In the end the risk versus reward is simply not there. Even if an employer says he’s not going to report what he paid you to the IRS, he can always change his mind. Misreporting your income, whether planned or not, can earn you penalties, fines and more. Constantly living in fear that the IRS will find out your unreported income is not worth the stress.

In truth this isn’t something the rich are doing to make their wealth. This is something that is typical of people earning minimum wage or less.  It becomes much easier to sympathize with the poor or underprivileged than with the government or IRS.  The government and IRS are the ones who are creating tax loopholes for big corporations like General Electric, Exxon-Mobil and Bank of America.  It’s hard to feel sorry for the government and big businesses when the answers to our federal debt problems and budgetary issues could be solved by forcing everyone to pay their taxes.

Despite this argument, I see unreported income as a personal threat to my family and really it’s unfair to all of us that do pay our taxes. Workers that hide income from Uncle Sam put more of a tax burden on us to cover their share. It’s estimated that 1.8 billion people worldwide are part of the “informal workforce,” according to the Organization for Economic Cooperation & Development. This leaves hundreds of millions of dollars in uncollected tax revenues by the states and the federal government, which makes it hard for them to fund education, police, and fire and rescue services.

Whatever temporary benefits one might gain from misreporting income to the government, the long term consequences for themselves and for all of us are not worth it.

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Keeping Money in Your Pocket,

Nancy Patterson