Under-the-table question...?

Question

My gf just started working at a local bar/night club as a shot-girl and waitress. Apparently, the new owner is just hiring local college girls left and right without even checking their driver's licenses (he hired a 17 yr old to serve alcohol). The guy intends to pay under the table. He also said that he doesn't care if they take a few drinks while working.
My question is: is this common? How illegal is it? And most importantly, could my gf get in trouble with the IRS etc. for not paying taxes on ANYTHING?
I'm 19 and I've only ever worked in pizza delivery, so I don't know how most of these places do business.Thanks.

I'm definitely not some sort of watch-dog or goodie-goodie, it's just that my gf (and her 17 yr old co-worker) are extremely naive and I'd hate for them to get in trouble. Please don't focus on the under-age drinking, as I'm well aware that that is illegal. Also, I live in Florida, if that affects the situation.

Answer 1

What he is doing is illegal, but I am more concerned that these young women may be taken advantage of. This sounds like a shady operation.

Be a good friend and urge her and her friend to find other jobs. I don't think they are safe where they are working.

Persons who work for tips need to keep track of them and report them to their employer in any month that their tips exceed $10. Unreported tip income also needs to be reported on the tax return, and social security and medicare need to be paid on those tips.

If she is a dependent, the maximum wages and tips she can earn without paying any taxes in 2007 is $5,350.

Answer 2

Ok - there is a lot more than meets the eye. You know that there is something amiss with not paying taxes but there is another consideration that you may not have considered.

If you and your girlfried go to buy a house or rent an apartment the landlord will want to see a copy of your tax returns to verify that you can afford the rent. She will not have any income, or return, so you'll be stuck. I have seen this happen many times, esp. with young couples that go to buy their first house.

The tax issues -
Regardless if the income is paid under the table Internal Revenue Code section 61 states that everything is income unless the code provides an exception. You alrready know that the income is taxable.

If you do not file a return the statute of limitations does not "toll". In other words the IRS can go back for as long as they want to assess taxes, penalties, and interest. If you file a fradulent return you have comitted a criminal act (read the little disclaimer below your signature on a form 1040). If you file and underreport your income by more than 25% the IRS can go back 6 years. Less than 25% underreported 3 years.

You're young, but don't be stupid. The fact that the owner lets underage people drink at work should be the biggest clue.

Answer 3

The owner is doing a number of things that are illegal, hiring someone underage to serve alcohol and paying under the table. And if the people who work for them don't file a tax return and pay their taxes on the income, they are also doing something illegal.

At such point as the owner gets busted for this, and he most likely will, the "employees" will probably also get busted, and then be in trouble with the IRS. Your gf would be a lot better off to steer clear of this sleaze and find a job somewhere else.

Answer 4

This opens up a world of problems for your girlfriend and her "employer". If the IRS finds out, they will at minimum assess interest and penalties if she doesn't file and pay her taxes. They could file criminal charges of fraud and tax evasion if they felt it was warranted.
Her employer would also wind up in trouble with the IRS, because, I'd hope your gf would cooperate with them and answer all their questions. He's responsible for paying taxes on her employment as well.
The simple way to avoid any problems, is to contact the IRS to send in quarterly estimated tax payments. She would be acting as an independent contractor, and would have to keep track of what she's paid. She doesn't need to do too much special. Her SS number is her taxpayer identification number and her taxes will be paid through her 1040. She'll also need to include schedule C and scedule SE with her return. The schedule SE rolls to line 58 of the 1040 and the schedule C rolls to line 12. Make sure she keeps track of any expenses she has for working there. Any miles she drives on her car to get to and from work, and a portion of the depreciation are all tax deductible. Although at 17, I'm assuming that's her age, she's not likely to reach the treshhold to itemize her deductions, so the $3,400 standard deduction would apply.
That's just the tax portion I'm afraid. I know it's not legal someone under 21 to be serving alcohol, but I don't know who's liable for that. Certainly the employer is, I just don't know about her. A lawyer would be better able to answer that question. I won't insult your intelligence about the consumption of alcohol by a minor.
Good luck to you both.

Answer 5

Most bars are like this. They pay under the table to keep from having to pay into Medicare and Unemployment for their employees. If your GF gets caught by the IRS for not paying taxes on her earnings then she could get into trouble, but in reality everyone does it and hardly anyone ever reports their earnings. Tell your GF to make sure to ID all her patrons so she is not involved in a underage sting or she could loose her job, be fined and possibly face jail time. If this establishment is hiring underage girls to serve alcohol and she feels uncomfortable with it she can report them anonymously to her local liquor commission or better business bureau.

Answer 6

It's illegal, she's not taking taxes out of her pay. If the IRS were to find out they would charge her a big fine and go through her bank records to determine how much she owes. I believe it will stay on her record for 7 years which won't be good if she tries to get a load. Also I believe in all states its illegal to hire a minor to handle alcohol, the owner can get his licence revoked for good giving drinks to a minor.
Hope that helps!

Answer 7

Taking under the table wages, with the intent of not reporting them on your taxes, is a felony type tax evasion offense. The employer is also acting illegally but he knows better but, due to lax enforcement, is willing to take the risk that the IRS or State will not audit him.

My advice to you is to have her take the payments but report them on her tax return as income. She can make $10,000 or so per year without any tax liability but, more importantly, it is the right thing to do.

Answer 8

I don't know how illegal the under the table pay is, but if he is hiring under age girls to sell alcohol the place is going to get shut down sooner or later, and I don't think your girlfriend is going to want to be there for that.

Answer 9

Yes your girlfriend can get in trouble. I had a friend that all of a sudden this year his bosses company want out of business he worked for him like two years before than. Because he went out of business he had to report things, and of course all of a sudden my friend gets a %7,000.00 bill from the state of income taxes

Answer 10

There is a can of worms here that you don't want opened.

Tell your gf to find another job. The risk of getting busted is not worth it.