Reaching out to Uncle Sam from under the table.
February 8, 2010 5:32 AM   Subscribe

U.S. TaxFilter: I get paid under the table, and as such I don't have a W-2 for my work. How do I declare this on my taxes?

Yes, I know, I get paid under the table and want to pay taxes. It's not that I'm a masochist or super eager to support my government, but I'm in a relationship with a non-citizen who may someday want to get married and if we're going to apply for a green card, we'll need to submit my taxes, so everything needs to be on the level.

I get paid by check once a week. I don't have copies of any of the checks, which may be stupid, but it never occurred to me (until now) to save any of them. I get paid the same amount each week and can easily calculate the total amount that I've earned, so the amount I need to declare isn't in question.

My question is how do I declare this on the 1040? Other earnings? Is there any kind of "proof" that I need to submit for this? Some kind of other form I need to get?
posted by grapefruitmoon to Work & Money (26 answers total) 2 users marked this as a favorite
From the IRS website, Four Steps to Follow if You Are Missing a W-2. Basically you are creating a substitute for the missing form, and informing the IRS of your employer's illegal activities.
posted by Houstonian at 5:42 AM on February 8, 2010

This could get... messy. Both you and your employer are technically in violation of the law here, and the IRS cares about this sort of thing.

Take a look at this, the 1040 instruction document prepared by the IRS. On page 22, there is a discussion of what to do if you don't receive a W-2, i.e. a statement from your employer about how much you have earned in the previous year. All employers are required by law to provide such a document to both their employees and the IRS.

According to TeleTax topic 154, mentioned in the 1040 instructions, the IRS wants you to contact them if you don't get a W-2 by February 10. This will probably mean that your employer--and quite possibly you yourself--will be fined for tax evasion. Your employer isn't withholding your income taxes or paying your payroll taxes, and, well, the Taxman wants his money.

So this isn't simply a matter of filling out the right form and going on your merry way. You are currently a tax delinquent, and your employer is breaking the law in a number of ways. Getting this worked out is going to be harder than it probably sounds.

You need more help than an AskMe here. You need a lawyer, preferably one with accounting and tax experience. You also need to work with your employer, because coming clean here will expose him to liability.
posted by valkyryn at 5:45 AM on February 8, 2010 [3 favorites]

Could you be construed as a contractor or self employed? If so, you were supposed to do your own withholding and use 1040-SE.
posted by a robot made out of meat at 5:45 AM on February 8, 2010

I think grapefruitmoon is a nanny for one family, so the IRS probably wouldn't consider her an independent contractor.

"Some nannies and employers try to circumvent these requirements by calling the nanny a "contractor," but this isn't as much of a loophole as it may seem. The IRS has strict guidelines to define employees and independent contractors, and nannies and other domestics are generally considered employees. The distinction is a fine one, and centers on whether you or the nanny controls the work she does.

The IRS also takes into account whether she brings her own equipment and whether she provides the same service to others. If your nanny considers herself self-employed, brings her own supplies, and provides childcare services to more than one person then you might be able to call her a contractor. (Nannies who report to a nanny service usually are considered contractors.) Otherwise she's considered an employee."

~ from BabyCenter, Legal Requirements for Employing a Nanny
posted by HopperFan at 5:58 AM on February 8, 2010

I think grapefruitmoon is a nanny for one family, so the IRS probably wouldn't consider her an independent contractor.

Yes, that is the situation. In the past, I was paid through a service, but my current employers felt more comfortable paying me directly.
posted by grapefruitmoon at 6:02 AM on February 8, 2010

The IRS expects you to pay-as-you-go. The underpayment penalty is 2.66% of the amount you didn't pay.
posted by smackfu at 6:03 AM on February 8, 2010

You basically can't do this without getting your employer in trouble. As soon as you create a substitute W-2 for the income they didn't pay you, it becomes clear that they're not paying you the legal way that they should. If what you're trying to do is solve the longer term "me and my bf want to show a legit paper trail in case we decide to tie the knot" your best bet is to consider last year a loss and talk to your employer about paying you legally from this point forward.
posted by jessamyn at 6:10 AM on February 8, 2010

I don't feel the need to ask this anonymously, which is why I didn't do it. I'm trying to be on the level, which while I probably should have done it up front, it just didn't seem necessary until marriage to my partner became a concrete possibility which was after I got this job. I'm asking a question about how to make something legal, not how to get out of paying my taxes. I have no fear of my current employers finding out that I want to work this out, or any future employers knowing that I need to do things on the level (which they would know since, duh, I wouldn't get paid under the table again knowing that it would cause tax problems which would be an issue for my partner's immigration in the future).
posted by grapefruitmoon at 6:11 AM on February 8, 2010

You need to have a sit down with your employer and figure out how you are going to do this. This has the potential to effect both parties negatively. Talk to their accountant and go find one of your own. Or on preview, what valkyryn said.
posted by bigmusic at 6:12 AM on February 8, 2010

For a couple of years, I was paid from a grant and I received no W-2 and didn't have any withholding. I reported the income as "other" on my taxes and paid what I owed in a lump sum. The next year, I made quarterly estimated payments instead. I use TurboTax and found it pretty easy to do. Sounds like your situation could get a bit hairy, though, so you might want to talk to a tax attorney as suggested above.
posted by emd3737 at 6:16 AM on February 8, 2010

You are paid under the table. "Under the table" means "covertly," as in out of the ostensible field of view of taxation authorities. The entire purpose of being paid under the table and accepting said payments is to dodge taxes and so you and the employer can avoid paying. Otherwise you'd get a proper paycheck with proper withholding.

I'm going to reiterate what was already said: "This could get... messy. Both you and your employer are technically in violation of the law here, and the IRS cares about this sort of thing."

Accepting under the table payments is awkward from a tax perspective. Ratting out your employer to the IRS is going to be awkward from an employment perspective. Not providing you a W-2 is also going to be something your employer will get slapped around for.

"how do I declare this on the 1040? Other earnings?"


You'll have to file a 4852 [pdf] with your 1040. You can ask your employer to tell you some of the numbers for the blanks on the form, but they may be zero, and asking your employer for this information is going to give them the heads-up that you're reporting them to Federal authorities for illegal activity. You should realize that stands a real chance of complicating your relationship with them.

I am not advising you to fail to report your income, but that's what people who want to be paid under the table are trying to do, and that's what employers who are paying people the table are expecting.
posted by majick at 6:18 AM on February 8, 2010

" I have no fear of my current employers finding out that I want to work this out"

In this case you need to talk to them, have them get their accountant and a tax lawyer on board, and probably get legal advice of your own. You're proposing to sit down at a table with them and say the equivalent of "I'm calling the [tax] cops on you," and while you're not afraid of the consequences -- a very brave stance to take! -- how they react to being busted for Federal tax crime is not something you have control over.

Also, start looking for work.
posted by majick at 6:26 AM on February 8, 2010

When I was a freelancing musician, one of the pubs I played at gave me a 1099 (recurrent gigs >$1000 total), but none of the others; I filed a Schedule C, and reported the 1099, as well as cash from other sources, total maybe $5000. Conveniently, I made a major purchase that year, so my net was only about $500. I wasn't too worried about it because I felt like my numbers were small potatoes, but this tactic may not work so well for you.

As I read the above, it seems like you've got two choices: 1. You are an employee, and your employer should have done a W2 (putting everything firmly above-board and probably getting them and perhaps you in trouble for the past but clear for the future), OR 2. You are self-employed and/or contractor (depending on the numbers involved, may bring down trouble or not, but it would be focused on you more than on the employer, and as a kicker, would not solve this problem for the future).

I suggest that you talk to the employer about taxes, and doing everything letter-perfect for the 2010 taxes. Knowing what perfect means for 2010 may give you a better idea of how hard it would be to set up 2009 retroactively. I'd also suggest that you talk to a real accountant.
posted by aimedwander at 6:35 AM on February 8, 2010

IANYL, and this is not tax advice. Something I don't think has been quite spelled out above is that, by paying you under the table, your employers are themselves evading tax--that is, an employer is required to withhold certain amounts from your paycheck AND also is required to pay out of their own pocket to match certain of those expenses. Thus, the employer pays you $100, and is required to withhold, say, $10 for FICA. You get $90. However, the employer, in this case, has to pay $20 to the Treasury--your $10, and THEIR $10 to match.

So when you then decide to bring your taxes current, your employer will have to come up with their matching payments, as well. Plus penalties and interest.

You definitely need a lawyer and and accountant, and possibly a new employer.

Again, not tax or legal advice; I am not your lawyer.
posted by Admiral Haddock at 6:43 AM on February 8, 2010 [2 favorites]

This is the IRS document your employers are supposed to use: Household Employer’s Tax Guide

Here are some instructions for: What do I do - I didn't get a W-2? One interesting thing they point out is that the IRS form says: "Generally, do not file Form 4852 before April 15."
posted by smackfu at 6:48 AM on February 8, 2010

Just because you don't have any fear of talking about this doesn't mean that your employer shouldn't. Quite a number of politicians have seen potential positions go to others or campaigns implode because of doing exactly this.

majick is right. You are calling the cops on your employer. This isn't the sort of thing most employers take kindly to.

I say again. This is a Big Deal, and it's not something you can take care of by simply filling out a form. You need professional guidance, at least an attorney and possibly an accountant, and you need to do this in cooperation with your employer.
posted by valkyryn at 6:57 AM on February 8, 2010

Obviously, I'm willing to try and work this out for 2010. Can we please stop insinuating that I'm going to get fired for this? You are not my lawyer, but you are not my employer either. Thanks.
posted by grapefruitmoon at 7:00 AM on February 8, 2010

I just want to point out that by working under the table as your primary source of income, you're potentially putting yourself in the position to not qualify for social security and/or medicare/caid benefits because, according to the gov't, you haven't paid in to the system.

You probably realize this, and it's not a big deal if you don't report second-job or alternate-income, but when it's your primary wage, you can really fck yourself.
posted by TomMelee at 7:18 AM on February 8, 2010

I'm no tax expert, but I had years where all I did was freelance work, and in one case it was mostly from the same employer. In that case they gave me a 1099, but they hadn't withdrawn any taxes from my pay. Other earnings I didn't get a 1099 for I reported as well. When I filed my taxes I set up an estimated tax schedule. The year after, they still did not withdraw taxes but I was paying estimated taxes based on the schedule.

The following is from this page:

You must pay estimated tax for 2009 if both of the following apply.
1. You expect to owe at least $1,000 in tax for 2009 after subtracting your withholding and credits.
2. You expect your withholding and credits to be less than the smaller of;
* 90% of the tax to be shown on your 2009 tax return, or
* 100% of the tax shown on your 2008 tax return. Your 2008 tax return must cover all 12 months.
posted by beyond_pink at 7:27 AM on February 8, 2010 [1 favorite]

If you want to work it out with your employer, the first step is for them to do a W-2 for you. Filing the Form 4852 is for if they refuse, and you're also supposed to contact the IRS before you do so so that they can contact your employer to get them to send you a W-2. I would guess your employer would be in more trouble that way. If you can get them to give you a W-2 (and file it with the government, and catch up on the back taxes) it will hopefully just get treated like late payments with the accompanying financial penalties, and not like intentional law-breaking.

And yeah, just to confirm, your employer is likely to be on the hook for Social Security, Medicare, and unemployment tax as well as for underpayment penalties, just so you're conscious of that in this discussion. (Plus you're on the hook for your share of SS and Medicare, on top of your income taxes, but sounds like you're willing to pay up what you owe.)
posted by EmilyClimbs at 7:30 AM on February 8, 2010

My understanding is that if you file as a contractor and you aren't, if the IRS finds out your employer will be in trouble, not you.

The hurdle with that is that it doubles your SS and medicare. You'll end up with a huge tax bill.

Try legal aid if possible or a local university/law school tax clinic.
posted by kathrineg at 8:01 AM on February 8, 2010

Additionally you have no obligation to help your employers evade the law at your expense. This is your social security, your medicare, your marriage. Do what you need to do.
posted by kathrineg at 8:05 AM on February 8, 2010

I wasn't insinuating you're going to get fired for this (although people do tend to get cranky for ratting them out to the federal government and subjecting them to fines, penalties, additions to tax, etc., and it sounds like you're going to them first, so it won't be a surprise)--it was more that your employer has put you in a pernicious position, both with respect to your tax status and with regard to your potential future marriage, and you might be better served with an employer who does not put that in jeopardy for the purpose of their own tax evasion.

Let's face it--people who have enough money for a nanny are likely sophisticated enough to know that they have tax obligations with respect to household employees; this is surely why they chose not to use the service and pay you by check directly. Not your lawyer, not tax advice.

In any event--good luck.
posted by Admiral Haddock at 8:35 AM on February 8, 2010 [1 favorite]

We're not your employers, but I do tax work. The thing about reporting them is that it's not just a slap on the wrist and don't do it again kind of situation. There are fines involved. Depending on how much you get paid, those fines could look pretty substantial to an ordinary family, and if they didn't then that family would probably already have been willing to provide you with a W-2.

If you made more than $1700 in 2009, your employer was obligated to not only withhold federal income tax and FICA, but also pay the employer half of FICA, and unemployment tax. The penalty for late filing alone on a Rhode Island state unemployment tax return is $10 per report, plus 10% of the amount due, plus $25/month up to $150 per report for late filing, plus 1.5% per month on the balance until paid. And none of it can be waived. And those are quarterly reports. Then throw in the quarterly report late fees for the federal FICA taxes and withholding, the annual report late fees, the W-2 late fees, and that's before you get into questions beyond mere negligence in not filing--technically this is tax fraud and it is a crime.

All that said, you *should* be reporting this income anyway. And the way to do that is a substitute W-2 as noted above if they won't provide you with one. But it will cause trouble for your employers, and aside from that they *will* have to properly file in the future, and you may find that they cannot afford your current rate of pay in that case. If you file as a contractor and aren't, your employer can get in trouble, but the thing that it also potentially becomes fraud for you if you're deliberately misrepresenting your status for your own benefit.

You should consult a CPA on this. They can refer you to an attorney as necessary. If you want to be agreeable to your employers, ask that they see a CPA with you to try to minimize the costs to all involved, but I wouldn't expect them to be thrilled with this development.
posted by larkspur at 8:40 AM on February 8, 2010 [1 favorite]

Also, you need to change the way you are being paid *now*. It is not appropriate for you to be accepting payment for your services this way, especially if you are going to need to submit your taxes at some later point for your partner's green card. It's just not ethical to take payment "under the table" and the sooner you right this situation the better, or you will be in the same bad place next year at tax time.

If you are an independent contractor, you are required to put money aside, based on your projected income, for your taxes, and fill out the appropriate forms. If you are not a contractor, your employer needs to provide you with a W2. In this thread, you have admitted that neither you nor your employer are acting legally and ethically.

You might want to either anonymize this thread or ask for it to be deleted, despite how okay you are with how you are now proceeding, because what you have done in the past could get you in serious legal trouble.
posted by misha at 11:08 AM on February 8, 2010 [1 favorite]

As for the concerns about my employer's reaction: we've spoken briefly and are going to try to work this out together in whatever way is both a) legal and b) of minimal cost to everyone. As I said, when the job began, marriage wasn't in the picture for me and my partner so being on the level in terms of taxes wasn't a priority. (Anyone familiar with nannying knows that it's just easier to do it under the table, if also not entirely moral.) We are going to work it out so that 2009 will be taxed, as well as the upcoming year.

As for my past getting me into legal trouble - this year is being taken care of. My previous nanny job was paid through an agency - taxes and all. While the path has been a bit murky, there is nothing going on that's illegal - I'm going to pay taxes, and if they need to, my employers are going to work out what they owe. No one is calling the "tax cops" on anybody.

My employers obviously knew that taxes could be an issue with hiring a nanny, and are very understanding about my partner's immigration concerns. Nobody is thrilled that this has become more complicated than we had originally anticipated, but we're going to try and work it out. I've offered to take a pay cut if necessary, but hopefully we won't need to.

Thank you to the people who offered helpful advice. Those concerned about my job security... well, I appreciate your concern, but it wasn't warranted in this situation.
posted by grapefruitmoon at 5:32 PM on February 8, 2010

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