While being paid in cash may seem desirable, discover the advantages, disadvantages, and there are plenty of things to consider once tax season rolls around.
It’s easy to think that no one gets paid in cash anymore. Most people don’t carry cash nowadays. Restaurant workers and bartenders are among the few employees that are paid in cash these days.
When you do get paid in cash, you have to be very careful about reporting your earnings and paying taxes. Otherwise, you’ll get in trouble with the IRS. You don’t want to go to jail for tax evasion. Read on about the pitfalls of getting paid in cash and how you can avoid them.
Are You Breaking the Law?
The first question to ask is whether or not you’re breaking the law for getting paid in cash. You’re not and your employer isn’t breaking the law, either.
Where you can get into trouble is in reporting your wages and paying the amount of taxes owed to the IRS and your state and local tax authorities.
What if bartending is a side-gig for you? You need to report income over $600, whether that’s in cash or another form of payment.
Safety and Security
Carrying around a big wad of cash can be a safety risk. People know that most bartenders are paid in cash, and they could be targeted walking out of the bar after a late night.
Not only that, if you have cash, you have no way to get it back if you lose it or you’re mugged. That cash can be your rent or grocery money.
You want to keep your money safe when you walk out of the bar. It’s also helpful if you walk out with other people.
Poor Record Keeping
Your employer is responsible for issuing a W-2 to you by the end of every
January. That information will help you file tax returns. If you’re an independent contractor, you should get a 1099-MISC.
The W-2 will show how much you were paid and how much was withheld for taxes for the entire year. It’s your responsibility to make sure the information here is accurate.
A 1099-MISC will show how much you were paid. It’s your responsibility to pay taxes on what you earned.
You have an added incentive to keep track of how much you were paid in cash each time you get paid. You should also check with your employer to see what is being withheld from your payments and how they keep records.
The IRS will look at your tax returns and what your employer reports. If there’s a discrepancy, that will raise a red flag. For independent contractors, you want to have enough money set aside for taxes. If you will owe more than $1000 in federal taxes, you need to pay estimated
taxes each quarter.
The best way to keep track of cash payments is to use a pay stub creator like the one on this site each time you get paid. This way you don’t have to backtrack cash payments.
Protect Yourself When You’re Paid in Cash
When you’re paid in cash, you need to make sure that your wages are reported to the IRS correctly. You also need to make sure that you pay your taxes. It can be difficult to prove, which is why accurate record keeping is critical for your protection.
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