Under the Table Employment

by Evil HR Lady on December 26, 2008

I work at a small company that has been struggling for a long time now. A couple years ago the I was faced with a choice. Get paid under the table, accept a 25% pay cut, and lose health insurance or lose my job. I chose to become an “undocumented worker.” So I not have paid or filed for taxes since 2006. I would like to be legitimate and pay my taxes but I live paycheck to paycheck and I really can’t pay even this years taxes, much less taxes from previous years. Bankruptcy would offer one potential solution and is worth consideration. But my questions are not about bankruptcy but rather employment.

I have two questions:
1. I have to wonder how this will impact employment verification. When applying for a new job, will the potential employer know that I have not been paying taxes?
2. Assuming I am hired, and the new employer bringing me into their HR and tax systems, will they then learn that I was not paying taxes?

I presume you lost your health insurance anyway, as employees who don’t technically exist can’t really be added to your health insurance rolls. So, you’ve just chosen to be dishonest, working for someone who is dishonest and now you fear it might catch up to you.

Ahh, wickedness never was happiness. Sometimes it just takes a while for the unhappiness to catch up to you. Never mind, here are the answers to your questions.

1. For all intents and purposes you have not been employed. If your current company has been paying you under the table, you can’t really list it on your resume as your current company. The best you can say is that you were an independent contractor who did work for this company. It’s doubtful that they will ask to see your 1099s to verify. Your current employer can offer a reference, stating you are a contactor.

2. No, your new employer will not learn whether you have been paying taxes or not by simply hiring you and bringing you into their system. They will simply start reporting your income to the IRS.

Of course, when the IRS busts you (which they will), they can require your new employer to start garnishing your wages to make up for your lack of tax paying. Fun!

Now, as for the troubles you’ve created for yourself, I suggest you try to fix it as soon as possible. You say you have no extra money. Well, then, you have no extra money for IRS fines. I suggest you use what money you do have to hire a competent accountant (not a trained monkey at one of those fast food style tax offices) to help you figure out what you owe and what you need to do about it. It can only get worse. If you are a low income earner, it may not be as bad as you feared.

Now, I need the lawyers and accountants (of which I am neither) to weigh in and tell you how much trouble you are really in. It’s best to get honest as soon as possible and be honest going forward. And while you are at it, let’s get your finances in shape so you don’t end up like this again.

{ 23 comments… read them below or add one }

Rachel - I Hate HR December 27, 2008 at 12:21 am

You’ve been working there for a couple years after this happened? Why oh why are you just thinking about leaving now?

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EHRL Reader December 27, 2008 at 12:34 am

Evil HR Lady, even though your advice is spot on as always, I think you misread part of the situation described by the submitter. S/he said, “I was faced with a choice. Get paid under the table, accept a 25% pay cut, and lose health insurance or lose my job.”

In your answer, you said “I presume you lost your health insurance anyway, as employees who don’t technically exist can’t really be added to your health insurance rolls.”

But from the excerpt above, it is clear that the choice included losing health insurance along with a 25% pay cut (as the alternative to losing the job).

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Evil HR Dictator December 27, 2008 at 3:40 am

Spot-on advice, EHRL. For those reading the blog, if anyone suggests paying you under the table, turn the dirty money down and get yourself a job with an honest employer.

Great blog, by the way, EHRL. I’ve really enjoyed reading the archives. You’ve done an outstanding job.

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Evil HR Lady December 27, 2008 at 12:27 pm

EHRL Reader–I honestly don’t see how you can keep a “non employee” on your health insurance rolls. Maybe you can, but I can’t seem to figure it out.

Evil HR Dictator–thanks! Keep on reading forever.

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Greh December 27, 2008 at 5:30 pm

The single worst part of losing the insurance is the transportability. Preexisting conditions will not be covered when insurance picks up again.

Consider contacting an employment attorney. There is probably liability on the part of the employer, especially if they used duress and coercion to do this.

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Joe December 28, 2008 at 5:39 am

Ooooh they're going to get f(&Y&(*^ed hard. When the current boss sees a problem expect 1099's that were 'lost' to be sent to the IRS. At that point 'under the table' will mean 'contractor' and they'll be on the hook for taxes and Fica. Basically they'll be screwed big time. Unless they got the deal in writing? Did you get the deal in writing? if you didn't you're hosed.

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Anonymous December 28, 2008 at 1:58 pm

one point on health insurance. if there is a 62 day break in coverage, you lose pre-existing coverage.

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EHRL Reader December 29, 2008 at 12:58 am

EHRL asked:
“EHRL Reader–I honestly don’t see how you can keep a “non employee” on your health insurance rolls. Maybe you can, but I can’t seem to figure it out.”

I think I didn’t make myself clear – sorry for that! Of course I agree with you that a “non employee” cannot stay on the company’s health insurance rolls.

What I was pointing out was that the person asking you the question had already said he/she had chosen to lose health insurance and get a 25% pay cut to keep working as “non employee”. And in your answer you noted, “I presume you lost your health insurance anyway”, when you didn’t have to presume – it was part of the deal described by the person who wrote to you, in order to keep working as a “non employee”.

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Nonprofit SOS December 29, 2008 at 5:53 pm

Your advice is totally correct. If an employer ever says they want to pay you “under the table” it really is no different than being an independent contractor. Basically, they are making it your responsbility to pay the taxes. Now that doesn’t make it right and if the IRS determines you are really an “employee” then they will be in trouble as well, but that is a whole other issue.

- Kristen

http://www.nonprofitsos.com

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jaded hr rep December 29, 2008 at 6:57 pm

The small co. is probably is deeper doo-doo, since presumably their “independent contractor” didn’t submit any bills or invoices, hence no record of the contractor’s services. If it smells too much like trying to cheat the state/feds, I’m sure they’ll get called on that, along with other accounting problems.

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Infamous HR Guy December 29, 2008 at 8:18 pm

Oh man, Evil HR Lady said it. FIX IT! FIX IT NOW!!!

Honestly, in a small company I could see an owner doing this. Especially if you were a good worker. We assume they are evil (pun-intended), but in all reality they could have been trying to help the person out. I have done 22 lay-offs (right sizing, reduction in force..etc) in the past 4 years (a private small business being one of them).

Taking care of your taxes now will only save you the pain later (1-5 years). Go to a tax attorney, and look into the 1 time forgiveness IRS tax break. You may be able to pay pennies on the dollar to bring yourself current. BUT, you can only do this one time with the IRS so make sure it counts and you fess up to all moniues earned.

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Anonymous December 30, 2008 at 7:52 pm

Not all “fast food” tax professionals are created equal so do not lump them all into one catatory. I have been doing taxes for several years and am required to take a lot of classes to stay certified.

Call and make an appointment. As previously noted, depending on your level of income you may be surprised at the outcome.

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Leeroy Glinchy January 1, 2009 at 8:56 pm

I am not a lawyer nor an accountant. I have no real life skills either.

However, I totally empathize with you. You were on your knees and you got taken advantage by a dishonest employer. You may have had other options but you _felt_ like you didn’t so you didn’t. Not your fault for feeling that way. I spent years feeling like I was on my knees, too. Companies do that to you. I guess it makes more profits for the people at top if they wreck your self-esteem so they can squeeze you.

I wonder about the advice to report taxes. Yes, honest is definitely the best policy at all times. If you don’t break the law, you need not fear it so squaring up is good.

However, since you are off the books now, will reporting your earlier dishonesty open up an investigation which could put you in more hot water?

I had been pressured to be dishonest in the past, and I found it hard to say, “no.” I was unemployed and down. They offered me more money than I ever had and they were nice to me (at first) as well.

I realize that I should have just reported them because if someone asks you to lie then what’s to stop them from lying to stab YOU in the back later?

So I sympathize and empathize with you and I’m sure the accountant will know how to get square with the law again.

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Shay January 2, 2009 at 3:39 pm

Not to mention: when you eventually do lose your job, and you probably will, you have nothing to take to the unemployment office. The dollar amount of unemployment you are paid varies according to how many hours you worked during the previous two years, and the State of (wherever you are living) will want documentation.

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Anonymous January 5, 2009 at 3:07 pm

The original poster should consider going to VITA (Volunteer Income Tax Assistance) for help filing back tax returns. The service is free. To find the nearest site, call 1-800-829-1040.

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Olivia January 6, 2009 at 10:13 pm

I just wanted to make one note – One person suggested it would help you if you had this agreement in writing – but I’m not sure that is the case. A verbal agreement is still an agreement (although a lot harder to prove in court). The history of your receiving this money is proof enough of the employer’s complicity. Plus, if they did coerce you into doing this (by threatening to fire you if you didn’t) you have a potential case against them on that basis.

Granted, unless you want to lie (some more) and say that you believed they were paying payroll taxes on your behalf, you still have tax issues that you need to discuss with a professional. But it might be worth speaking to an attorney too, since you may be entitled to some remedies legally as well.

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Anonymous January 12, 2009 at 6:51 pm

Would you consider submitting some of your content onto my site http://www.hrresource.com ? Its a basically a site for all human resource professionals to get involved. Please let me know. Thanks, J.

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Warrior Princess January 17, 2009 at 2:35 am

I’m not in HR, but I do contract work and here are the facts there: the IRS wants its money and it wants its money on time. Fail in either of these aspects and you will pay.

There is no way around paying Caesar his due, just do it and set up a payment plan. A new employer need never know. I would absolutely list the current employer on a resume but make sure you and your boss are clear on the fact that you’ve been working as an Independent Contractor – that’s the story and you both stick to it. Do not, under any circumstances, use the words “under the table.”

In the future, if you are going to work as an IC – get the terms in writing and draw up a one or two page scope of work signed by both parties. There is nothing at all wrong with being an IC ….except when you fail to include the IRS on the deal.

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Anonymous February 8, 2009 at 3:21 pm

Glad to see the info by Anonymous on Jan 5th. I think you should definitely get professional help in this situation, and an additional service I just discovered which might help is the Taxpayer Advocate Service.

“The Taxpayer Advocate Service is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.” from http://www.irs.gov/advocate/article/0,,id=97392,00.html

granted, you currently aren’t a taxpayer, but you (hopefully) plan to be one. Good luck on getting caught up!

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fav.or.it March 2, 2009 at 4:28 pm

There is everything wrong with being an IC when your really an employee. If you like the idea of paying your boss’s share of your SS and Medicare, then I guess being an IC is the way to go. Don’t forget, if you get fired, laid off, or a reduction in work hours, you won’t be eligible for unemployment benefits because your employer never paid his unemployment taxes. All your boss is doing is making it easy on himself by exploiting you. Well, easy on himself until the IRS catches up with him.

sent from: fav.or.it

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fav.or.it March 2, 2009 at 4:29 pm

There is everything wrong with being an IC when your really an employee. If you like the idea of paying your boss’s share of your SS and Medicare, then I guess being an IC is the way to go. Don’t forget, if you get fired, laid off, or a reduction in work hours, you won’t be eligible for unemployment benefits because your employer never paid his unemployment taxes. All your boss is doing is making it easy on himself by exploiting you. Well, easy on himself until the IRS catches up with him.

sent from: fav.or.it

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Pro March 20, 2009 at 5:09 am

This is how I made a job:

http://rockwebmedia.com/?p=8145

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eccentric57 January 4, 2012 at 1:08 am

As hard as it is right now, just do something to make it right! Last year I did not even work much, but owed the IRS 600 dollars. I am paying it monthly, and though it cuts into my budget, I sure as hell would rather pay it face worse.
The more honest you are right now, the better off you will be!

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