No Payroll Deductions

Dear, Anita,

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?

Pay_Stub_iStock_000006469037_SmallDear, Worried About Taxes,

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.

Cash paymentNow 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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5 Comments (+add yours?)

  1. CHARITA AYER
    Mar 17, 2016 @ 02:22:56

    Great Article. ideas . I Appreciate the info – Does anyone know where my business could possibly acquire a sample NYC RPIE-2010 Instruction version to edit ?

    Reply

  2. Tiffany Lieu
    Oct 14, 2014 @ 10:01:09

    Not in the California state I have been living in. With Medicare there is a known fixed percentage of garnishment for the annual wage earnings, usually 2.9%. For social security, the more you earn the more they garnish from your wages up to a certain percentage. Maximum monthly social security benefits is usually around $900/mo., and that’s dependent on how much you have earned till retirement age.

    Reply

  3. REBECCA
    Oct 14, 2014 @ 09:34:09

    OUR COMPANY HAS THE FRIDAY AFTER THANKSGIVING & WEEK FROM X-MAS TO NEW YEAR SHUT DOWN, BUT WORK SATURDAYS FOR THAT FRIDAY AFTER THANKGIVING AND FOR THE 26th,29th,30th,31st AND WLL BE BACK THE 2ND OF JANUARY
    SO HERES THE QUESTION! WE ARE WORKING FOR THAT TIME OFF AND GETTING A REGULAR CHECK, IS THAT RIGHT? OR SHOULD WE GET ANY OVER TIME FOR THOSE SATURDAY, AFTER WORKING A NORMAL 40HRS. THEN WORKING SATURDAY. IS THAT CONSIDERED O/T AFTER 40HRS.?

    Reply

    • anitaclew
      Oct 14, 2014 @ 11:52:00

      Rebecca, The answer depends on your company’s policy. According to the Federal wage and hour law (http://www.dol.gov/dol/topic/wages/overtimepay.htm), overtime must be paid to non-exempt employees who worked more than 40 hours in a work week. The key word is “worked” – holiday pay is not considered hours worked so overtime is not mandated. Check with your company’s human resources department to clarify the issue.

      Reply

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Disclaimer

Anita Clew's blog posts are intended for general guidance and should never be taken as legal advice. In all instances where harassment, inequity, or unfair treatment is believed to be present, please consult your HR Department or legal representation.
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