Can You Get Paid Under the Table?

Receiving compensation outside of official channels, known as “under the table” payments, represents an informal financial arrangement. This practice typically bypasses standard payroll systems and tax reporting requirements. While it might seem like a simple way to handle transactions, such arrangements carry significant and serious risks for both individuals and businesses.

Defining Under the Table Payments

“Under the table” payments involve compensation exchanged without being reported to tax authorities. This means no taxes are withheld, and no formal records, like W-2 forms or 1099-NEC forms, are generated. Payments are often made in cash, which further obscures the transaction from official scrutiny.

Individuals or businesses might engage in these practices to avoid tax obligations, reduce administrative burdens, or simplify transactions. For instance, an employer might bypass payroll taxes, while an individual might seek to avoid income taxes. However, these arrangements are illegal because they constitute tax evasion and circumvent mandatory record-keeping laws.

Tax and Legal Consequences for Individuals

Individuals who receive “under the table” payments face serious tax and legal repercussions. All income, regardless of how it is received, must be reported to the IRS. Failure to declare this income can lead to penalties for unreported income, including interest charges and fines. The IRS may impose an accuracy-related penalty of 20% on underpaid tax due to underreported income.

Beyond income tax, individuals receiving such payments are considered self-employed for tax purposes and are responsible for self-employment taxes. This includes Social Security and Medicare taxes, which total 15.3% of net earnings from self-employment for 2025. This rate comprises 12.4% for Social Security and 2.9% for Medicare.

Moreover, receiving unreported income can jeopardize eligibility for social safety net programs. Unemployment benefits, Social Security retirement benefits, and worker’s compensation depend on a verifiable earnings history. Unreported income means no contributions are made to these systems, potentially leading to reduced future benefits or ineligibility. For instance, Social Security benefits are calculated based on reported earnings, so failing to report income can lead to lower payments in retirement. Individuals may also lack legal recourse for employment disputes, such as wrongful termination or unpaid wages, due to the absence of formal employment records.

Tax and Legal Consequences for Employers

Businesses that make “under the table” payments face serious tax and legal ramifications. Employers are legally required to withhold and deposit federal income taxes, Social Security, and Medicare taxes from employee wages. They must also pay their matching share of Social Security and Medicare taxes, as well as federal unemployment taxes. Avoiding these obligations constitutes tax fraud.

Misclassifying employees as independent contractors to bypass payroll taxes can result in significant penalties. Penalties for misclassification can include 3% of the employee’s wages, 40% of unwithheld FICA taxes, and 100% of the employer’s share of FICA taxes. There can also be a $50 fine for each unfiled W-2 form. In cases of intentional misclassification or fraud, penalties can escalate, potentially including criminal fines and imprisonment.

Payments made “under the table” cannot be legitimately deducted as business expenses, increasing the business’s taxable income. The IRS actively audits businesses suspected of misclassification and employment tax evasion. If caught, employers face paying back all owed taxes, plus substantial interest and penalties. Willful employment tax evasion is a felony that can lead to fines and imprisonment.

Distinguishing Legitimate Payment Arrangements

Not all cash payments or informal work arrangements are considered “under the table.” It is entirely legal to pay or receive cash for services, provided all income is properly reported to tax authorities. For example, independent contractors receive payments in cash or through other direct means. As self-employed individuals, they are responsible for tracking their income and expenses, and reporting their net earnings on Schedule C of Form 1040.

Independent contractors must also pay self-employment taxes and make estimated quarterly tax payments if they expect to owe $1,000 or more in taxes. This ensures taxes are paid throughout the year, similar to how an employer withholds taxes for an employee. The key distinction lies in transparency and compliance; legitimate arrangements involve full disclosure and payment of all applicable taxes, whereas “under the table” implies deliberate concealment.