Occasionally, when interviewing a client for bankruptcy, I am told, "Well, I do work for this guy, but it is under the table/off the books." The reason for this is that they cannot pay the bills on their income if taxes are deducted.
The fraud consequences of not declaring this income on your tax return aside, this strategy is always a bad idea. What most people do not realize is that the downside to doing this exceeds the short term benefit of the tax savings. Three good reasons come to mind.
It Can Foul Up Your Social Security
First, what if you need Social Security benefits for retirement or a disability? Income "on the books" is reported to the Social Security Administration, not only in the form of the FICA taxes withheld, but also your work history.
If you work for any significant period of time "off the books," then later need to apply for retirement or disability benefits, you will be paid less than if you had reported the income because your earnings record will be deflated.
It Can Reduce Worker's Compensation Benefits
Second, what if you are injured on the job? I consult with many clients in the construction industry. What I tell them is that if you are not on the company books as an employee, there might be a coverage issue for New Jersey worker's compensation insurance.
That is even if the employer has compensation coverage! But then, not having coverage may be the reason you are off the books in the first place! Now you are struggling to get treatment and disability income that you might have easily received if you were "on the books."
It can also be difficult to calculate temporary or permanent disability benefits accurately without "off the books" income information. One example is under-reported tips by restaurant staff. They may well end up getting less than they might while out on disability, because they can't substantiate their true income.
It Can Hinder You from Filing Bankruptcy
Third, what if you have to file bankruptcy? I have had clients that have not been able to do so because they or their spouses had under the table income that would come to light through the bankruptcy petition, either by disclosed income in the petition that did not line up with tax returns or because they simply could not document it for some of the income analysis required under the code.
The bottom line: there is such a thing as being too clever for your own good. Bite the bullet, work on the books, and pay the taxes. You will be better off in the long run.
So What Should I Do?
If you live in southern New Jersey and are thinking about filing bankruptcy, please call my office at 856-432-4113 or contact me through this site to schedule a free consultation to discuss your case. Getting rid of crushing debt might just make it easier to live on your income after paying the taxes!
If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.