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Tax.appeal.168, Tax Accountant
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How to file taxes if paid under the table?

Resolved Question:

I have been getting paid under the table for the last three years mostly with cash but sometimes with checks. Yesterday my employer asked me for my information (he only has my name) so he could give me a 1099, but I don't feel like it is fair to give me a 1099. I read that if I refuse to give my social security number then he will be liable for 28% of the reported income. What should I do?

Submitted: 5 years ago.
Category: Tax
Expert:  Tax.appeal.168 replied 5 years ago.

In brief, the right thing to do is to provide the employer with the requested information, otherwise, you might find yourself without any income at all. Technically, if your employer has been paying you $600 or more, he should have been giving you a 1099 all of the time. SEE BELOW:


Trade or business reporting only. Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements. Other organizations subject to these reporting requirements include trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or (d), farmers' cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts. Payments by federal, state, or local government agencies are also reportable.

While it is true that he could be liable for a certain percentage of the income, he could also dismiss you as well. He is under no legal obligation to keep you on as an employee and you will have no legal recourse if he decides to dismiss you. Also note that he can still submit the 1099 to the IRS without having the necessary information, and the IRS will deal with the situation, which could lead to headaches for you.

Please let me know if I can be of further assistance to you regarding this matter.

Thank you.

Tax.appeal.168 and 4 other Tax Specialists are ready to help you
Customer: replied 5 years ago.

I'm worried that he will give me a 1099 for the last three years which could be close to 100k I am fully prepared to walk away from my job to avoid being responsible for 20k in taxes, or even 5k in taxes. How will the IRS "deal" with the situation?

Expert:  Tax.appeal.168 replied 5 years ago.

That is a pretty hefty piece of change. If I am not mistaken, 1099's can only be issued for amounts paid in the past year, and not be retroactive, but let me check on that to be sure. I'll get back with you shortly. As far as the IRS is concerned, if they receive a 1099 from the employer with missing information, and the employer tells them that you refused to provide it. They will investigate the matter based on whatever information they have. It could take a while for them to conclude the investigation, then again, it may not take them long at all.

Let me also mention that the IRS is cracking down on employers who pay their employees or independent contractors under the table. Also, they are cracking down on employers who classify "employees" as independent contractors. There are rules for each, an employer can't just decide to pay someone as an independent contractor to avoid paying employment taxes. The IRS has recognized this as a growing issue, now they are taking steps to make sure that employers are in compliance. This is one of the reasons your employer is now asking you for your information. So, that he could be in compliance, at least to a certain extent anyway.

The 1099 is for payments made during the past year. It is not retroactive.

File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year.

At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8);

At least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or generally, the cash paid from a notional principal contract to an individual, partnership, or estate;

Any fishing boat proceeds; or

Gross proceeds of $600 or more paid to an attorney. See Payments to attorneys, later.


General Information to know:

Following is an excerpt from an article relating to "Independent Contractors".



The government has been paying more attention in recent years to the issue of independent contractors, and whether some businesses are trying to avoid Social Security and Medicare taxes by classifying employees as contractors. A business that does that is violating the law.

Becourtney says many employers call part-time workers independent contractors. But the definition of an independent contractor doesn't have to do with hours worked _ it's all about how much control a business has over the worker. The IRS puts it this way: "The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done."

Control is the operative word. If a business can control where the work is done, the hours worked and closely supervises the work, then this is an employee.

Customer: replied 5 years ago.

I guess my situation is very complicated. Although, it is a relief that I only have to worry about 2011. What type of professional would I consult if I wanted to talk to someone in person about my situation? Thank you for your help.

Expert:  Tax.appeal.168 replied 5 years ago.

I wouldn't say that your situation is very complicated, but it is one that you should be concerned about. Please note that while the 1099 can only be issued for payments made during the year, the reality is that you are technically responsible for the earnings that you have already been paid over the years. One of my fellow colleagues, who is an EA (Enrolled Agent), sent me the following message:


This customer needs to understand that he is already responsible for taxes on his earnings whether or not a 1099 was filed previously or if late forms are now submitted for the past years. Leaving his position now does not change that he has underreported past income and is liable for tax on those unreported earnings. This customer also needs to understand that he can be examined and face penalties on the underreporting whether or not a 1099 was filed previously or if late forms are now submitted for the past years.

I'm sorry that I can't provide you with more favorable information.