Tax-preparation season is under way, and you may not know it, but some people in your community are cheating you.
Every time someone works “under the table” or pays employees that way, the government is not getting the business- or sales-tax payments that it should. And everyone in America has to make up the difference for these lost contributions to the system that funds government spending.
Writing in Bloomberg BusinessWeek, Oregon Sen. Floyd Prozanski and Rep. Paul Holvey said this underground economy “hurts government and private businesses. It directly affects government’s ability to fund public services, such as education, public safety and human services. It also undercuts legitimate private businesses.”
They went on to talk about the “billions of dollars of lost revenue to state governments that would be used to provide essential public services” and said that “tax cheats gain an unfair advantage by not paying their share of taxes and fees.”
The Press-Republican talked with local tax preparers, who described businesses and employees who agree to off-the-books pay as co-conspirators in an illegal arrangement.
“If one of the two parties rats out the other, there can be dire consequences,” one accountant told us, mentioning other repercussions.
”If you are an employer who pays under the table, you can be personally responsible if the person is injured on the job. You could have to pay their medical expenses and possibly support them for the rest of their life if they become disabled.”
Failure to maintain proper coverage can result in a $250-a-day penalty from the Workers Compensation Board.
Also, under-the-table workers might seek unemployment if you part ways, which can earn business owners a call from a State Unemployment Insurance auditor. That could lead to penalties, interest and maybe even having to pay the unemployment bills.
The Internal Revenue Service and State Department of Taxation and Finance have their own penalties for failure to withhold and report wages.
Advocates for low-income people say this underground economy provides jobs that wouldn’t otherwise be there. They point to the food and beverage industry, where people usually work for low wages, as a common area where people are paid off the books. If taxes were withdrawn from their meager pay, advocates argue, they wouldn’t earn a livable income.
But the employees are also losing out on something they might not be thinking about right now: Social Security benefits down the line. The amount you take home in Social Security is based on your earned income over the years. If income isn’t being reported, it isn’t adding to your work history.
It’s hard for young people to be future smart like that, but it’s just another way that working under the table is harmful.
Everyone who participates in this cheating of the government — because that is truly what is happening — forces fellow Americans to contribute more to the tax system that provides our services.