I work for a small company. My employer pays me with a personal check and I never see the break out of my taxes. Is the employer required to give me a break out of my taxes? Also, my 18-year-old niece just got a job at a coffee shop. Her boss pays her in cash. Is that legal?
If you are an hourly or salaried employee and not a properly classified independent contractor, your employer is required by law to withhold payroll taxes (Federal income, state, and any local taxes, along with Social Security and Medicare). Whether or not your company must provide an itemized pay stub varies by state. According to the American Payroll Association Basic Guide to Payroll, the only states NOT required to provide deduction information on an employees’ pay stubs are Alabama, Arkansas, Arizona (only required if paid by direct deposit), Florida, Georgia, Louisiana, Mississippi, Nebraska, Ohio (oddly the law only protects minors here; employees over the age of 18 do not have the right to an itemized pay stub), small South Carolina employers (who have less than five employees for the past year), South Dakota, Tennessee, Utah government employees, and only on request in Virginia. Ask your boss to clarify the issue. If you are not satisfied with the answer, check with an employment attorney.
Now let’s talk about your barista relative. Some businesses pay cash “under the table” (restaurants and the construction trades are notorious for this). The IRS and your state’s employment taxation agency do not look kindly on this practice. Employers who are caught during an audit face the consequence of penalties and interest in addition to payment of back taxes and may be subject to criminal prosecution.
What happens to employees who receive cash wages? They won’t have check stubs, a Wage and Withholding Statement (Form W-2), or a way to verify their earnings (advise your niece to keep records of her own), and they may be subject to an income tax audits for not reporting the wages. Note that the IRS doesn’t care if an employer failed to take out taxes; each individual is still responsible for their personal tax obligations. Your niece is not paying into Social Security or Medicare, which will affect her ability to collect in the future. I know, an 18 year old is probably not even thinking about those far-distant retirement issues. But if or when she needs to file for unemployment (UI) or state disability (SDI), benefits may be delayed or even denied.
Your niece should not accept being paid off the books. If her employer is unwilling to abide by its legal obligations, I would recommend she find another job. Whistle-blowing is optional.
Readers: Have you ever had issues with an employer not withholding the proper deductions?
Do you have a job-related question? Ask Anita.
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