Comments on: Ask the taxgirl: Payments Made Under the Table http://www.taxgirl.com/ask-the-taxgirl-payments-made-under-the-table/ Paying taxes is painful... but reading about them shouldn't be. Sat, 21 Nov 2009 20:16:58 -0500 http://wordpress.org/?v=2.8.6 hourly 1 By: Julie http://www.taxgirl.com/ask-the-taxgirl-payments-made-under-the-table/comment-page-1/#comment-8592 Julie Sat, 31 Jan 2009 15:28:48 +0000 http://www.taxgirl.com/?p=2433#comment-8592 It was my understanding that in some states an employer can pay cash without tax implications for a certain number of hours??? Of course, it is the empolyees responsibility to do the right thing an it is wrong to collect unemployment and work. It was my understanding that in some states an employer can pay cash without tax implications for a certain number of hours??? Of course, it is the empolyees responsibility to do the right thing an it is wrong to collect unemployment and work.

]]> By: irslinda http://www.taxgirl.com/ask-the-taxgirl-payments-made-under-the-table/comment-page-1/#comment-8571 irslinda Fri, 30 Jan 2009 01:30:59 +0000 http://www.taxgirl.com/?p=2433#comment-8571 Honesty is best. Irs may not catch up with the underreported income for a year or so. But they will add penalty and interest to boot Honesty is best. Irs may not catch up with the underreported income for a year or so. But they will add penalty and interest to boot

]]> By: Bill http://www.taxgirl.com/ask-the-taxgirl-payments-made-under-the-table/comment-page-1/#comment-8569 Bill Thu, 29 Jan 2009 23:02:58 +0000 http://www.taxgirl.com/?p=2433#comment-8569 I"m with Robert and garagefather. Working while collecting unemployment is illegal and you could be in serious trouble. That's why it's UNemployment. Claim ignorance, pay up, pay back the unemployment bennies, tell them you didn't know independent contracting counted as "employment", and pray the state and federal government believe you. Just because you don't get a W-2 doesn't mean you don't have to pay taxes. (Although lots of business owners apparently do seem to believe that, given the number of restaurant and club owners around here who go out of business for not paying taxes, like, ever.) I”m with Robert and garagefather. Working while collecting unemployment is illegal and you could be in serious trouble. That’s why it’s UNemployment. Claim ignorance, pay up, pay back the unemployment bennies, tell them you didn’t know independent contracting counted as “employment”, and pray the state and federal government believe you. Just because you don’t get a W-2 doesn’t mean you don’t have to pay taxes. (Although lots of business owners apparently do seem to believe that, given the number of restaurant and club owners around here who go out of business for not paying taxes, like, ever.)

]]> By: garagefather http://www.taxgirl.com/ask-the-taxgirl-payments-made-under-the-table/comment-page-1/#comment-8560 garagefather Thu, 29 Jan 2009 17:22:59 +0000 http://www.taxgirl.com/?p=2433#comment-8560 I would suggest the Timothy Geithner defense. It was an honest mistake even though you knew it wasn't when you did it. Secondly, Timothy Geithner supposedly cheated for several years on his taxes while you only cheated the system for 1 year. Our Secretary of the Treasury is 3 times the tax cheat as you are. You should feel pretty good about that. The one thing he may not have done is cheat the unemployment system. That may be your downfall because the, "I didn't know I couldn't collect unemployment while still working" defense is even more unbelievable than the "I didn't know I had to pay my social security taxes when I earned money" defense. Just remember: "It's not breaking the law until you get caught," and if you get caught, claim victim status so they will go easy on you. I would suggest the Timothy Geithner defense. It was an honest mistake even though you knew it wasn’t when you did it. Secondly, Timothy Geithner supposedly cheated for several years on his taxes while you only cheated the system for 1 year. Our Secretary of the Treasury is 3 times the tax cheat as you are. You should feel pretty good about that.
The one thing he may not have done is cheat the unemployment system. That may be your downfall because the, “I didn’t know I couldn’t collect unemployment while still working” defense is even more unbelievable than the “I didn’t know I had to pay my social security taxes when I earned money” defense.
Just remember: “It’s not breaking the law until you get caught,” and if you get caught, claim victim status so they will go easy on you.

]]> By: JEF http://www.taxgirl.com/ask-the-taxgirl-payments-made-under-the-table/comment-page-1/#comment-8544 JEF Wed, 28 Jan 2009 18:10:39 +0000 http://www.taxgirl.com/?p=2433#comment-8544 The taxpayer should not assume that he is actually an independent contract just because that is what was agreed upon with the employer. Contractual agreement is only one of the factors used to determine tax status. The other two factors are behavioral (ie. can you set your own hours) and financial (ie. did the company pay your benefits). <cite>http://www.irs.gov/businesses/small/article/0,,id=99921,00.html</cite> If the taxpayer is classified as an employee then it would save him the self employment taxes (but it might cost the taxpayer the ability to claim certain deductions for expenses). Either party can file an SS-8 to have the IRS determine the taxpayers proper status if the parties cannot agree. The company will probably want to avoid having the IRS investigate their employment policies (especially since they didn't work this out before paying out the money) so the taxpayer should have some leverage in a discussion with the company. No matter the status of the taxpayer I definitely suggest he do three things: 1. Speak with a CPA/tax lawyer to determine which tax treatment is best for your individual circumstances. 2. File a truthful return and pay any taxes you owe. 3. Speak with a qualified lawyer about the unemployment issue because I know nothing about that. <b>Like Kelly, I am not intending my comment to be legal advice. Please do not rely on anything in my comment without conducting your own research and speaking with a licensed tax professional.</b> The taxpayer should not assume that he is actually an independent contract just because that is what was agreed upon with the employer. Contractual agreement is only one of the factors used to determine tax status. The other two factors are behavioral (ie. can you set your own hours) and financial (ie. did the company pay your benefits). http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

If the taxpayer is classified as an employee then it would save him the self employment taxes (but it might cost the taxpayer the ability to claim certain deductions for expenses).

Either party can file an SS-8 to have the IRS determine the taxpayers proper status if the parties cannot agree. The company will probably want to avoid having the IRS investigate their employment policies (especially since they didn’t work this out before paying out the money) so the taxpayer should have some leverage in a discussion with the company.

No matter the status of the taxpayer I definitely suggest he do three things:
1. Speak with a CPA/tax lawyer to determine which tax treatment is best for your individual circumstances.
2. File a truthful return and pay any taxes you owe.
3. Speak with a qualified lawyer about the unemployment issue because I know nothing about that.

Like Kelly, I am not intending my comment to be legal advice. Please do not rely on anything in my comment without conducting your own research and speaking with a licensed tax professional.

]]> By: Robert D Flach http://www.taxgirl.com/ask-the-taxgirl-payments-made-under-the-table/comment-page-1/#comment-8540 Robert D Flach Wed, 28 Jan 2009 16:34:49 +0000 http://www.taxgirl.com/?p=2433#comment-8540 Kelly- It looks like the person asking the question not only wanted to screw the federal government by not reporting taxable income - but also wanted to screw his state unemployment fund by collecting unemployment illegally while actually working. No sympathy whatsoever for this person. TWTP Kelly-

It looks like the person asking the question not only wanted to screw the federal government by not reporting taxable income – but also wanted to screw his state unemployment fund by collecting unemployment illegally while actually working.

No sympathy whatsoever for this person.

TWTP

]]> By: Kelly http://www.taxgirl.com/ask-the-taxgirl-payments-made-under-the-table/comment-page-1/#comment-8534 Kelly Wed, 28 Jan 2009 15:29:41 +0000 http://www.taxgirl.com/?p=2433#comment-8534 Doh! You're right - that's what I get from trying to work from home on a snow day. I'll edit the form in the post. Doh! You’re right – that’s what I get from trying to work from home on a snow day. I’ll edit the form in the post.

]]> By: Vinny http://www.taxgirl.com/ask-the-taxgirl-payments-made-under-the-table/comment-page-1/#comment-8532 Vinny Wed, 28 Jan 2009 15:25:52 +0000 http://www.taxgirl.com/?p=2433#comment-8532 I think you mean a W-9 and not SS-4 if this person were being treated as an independent contractor. The situation sound to me like a small company was treating this person as a contractor but, like many small companies, had no idea how to treat independent contractors for tax purposes and probably found out at some point, "oh, poo, we've got to send this person a 1099 and we don't have his/her SSN!" Your writer also sounds like he/she had no idea how to handle being treated as an independent contractor and just needs to suck it up and prepare to fork over the associated income taxes, self-employment taxes, and possible penalties for underpayment of estimated tax. Hopefully he/she has some expenses to claim against the SE income (assuming the classification as an independent contractor was proper). I think you mean a W-9 and not SS-4 if this person were being treated as an independent contractor.

The situation sound to me like a small company was treating this person as a contractor but, like many small companies, had no idea how to treat independent contractors for tax purposes and probably found out at some point, “oh, poo, we’ve got to send this person a 1099 and we don’t have his/her SSN!”

Your writer also sounds like he/she had no idea how to handle being treated as an independent contractor and just needs to suck it up and prepare to fork over the associated income taxes, self-employment taxes, and possible penalties for underpayment of estimated tax. Hopefully he/she has some expenses to claim against the SE income (assuming the classification as an independent contractor was proper).

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