Often worker are tempted by the idea of working “privately”, or “under the table”, enjoying the extra few dollars they think they are getting. But there are hidden costs of “under the table” or cash pay for those workers.

The first hidden cost has to do with payroll taxes. When workers are paid legally, the employer splits the cost of the payroll taxes equally. For example, for each employee, At Home Nursing Care, Inc. pays 6.2% in payroll taxes, the employee pays the other 6.2%.

Those payroll taxes fund the employees’ future Medicare and Social Security benefits. An employee paid “under the table” doesn’t get help with the payroll taxes and could end up owing all 12% alone.

On top of that extra cost, the worker is not accruing the Medicare or Social Security benefits that we all rely on later in life.

The second hidden cost of working “under the table” is that normal income taxes are not withheld. Anytime someone earns pay above a certain amount, even gambling earnings, income taxes must be paid. Proper employers withhold those taxes and make regular payments to the IRS on the employees’ behalf. 

When private employers, who consider workers independent contractors, which is not accurate, later 1099 the “under the table” employee, that employee could end up owing the IRS thousands of dollars in back taxes, including hefty penalties.

The final hidden cost of working “privately” or “under the table” is that the employee may not have the protection of employment insurance or worker’s compensation protections, along with no legally required benefits such as paid sick time, or perks like health insurance coverage or a retirement savings.

In conclusion, before deciding to work “privately” or “under the table”, workers need to strongly consider the hidden costs and potential long term consequences.