Employees pay students under table in cash, dodge IRS laws

“I’d go play a show, someone would hand me cash, I’d go home and no one would ask any questions,” he said.

He works under the table as a musician, he said, and makes about $75 per show, generally playing one to seven gigs per month.

Working illegally, or “under the table” – working without documentation of employment – allows both employers and employees to avoid paying taxes on employees’ incomes and constitutes tax evasion, according to the Internal Revenue Services website.

Within the practice, payments are usually made to workers in cash.

In the Commonwealth, the practice is patrolled by the Joint Enforcement Task Force on the Underground Economy and Employee Misclassification, which was formed by Gov. Deval Patrick in March of 2008.

In 2010, the most recent year for which records are available, the task force recovered $6,489,549 in tax revenue that otherwise would have gone unpaid due to employees working illegally.

“This activity is unfair to taxpayers, especially businesses, that pay payroll taxes,” said Greg Freed, a spokesman from the Massachusetts Executive Office of Labor and Workforce Development, one of the departments on the task force.

But hiring workers and paying them under the table can be lucrative for business owners, said attorney Robert Shea, who specializes in employment law with Waltham firm Morse, Barnes-Brown & Pendleton.

“Employer costs associated with payroll, social security, worker’s compensation insurance and unemployment insurance may add 25 percent to the cost of an employee beyond the wage rate paid,” he said. “Add health insurance to the mix and it can be 30 to 40 percent.”

The practice of working and hiring under the table, however, subjects both the employee and employer to the risk of being charged with tax fraud, said BU Professor Lilian Faulhaber, who specializes in federal and international tax at the School of Law.

“The idea is the whole tax system is based on income, and if there’s no income being reported, then there’s a whole host of taxes that are just not going to be paid,” Faulhaber said.

Even the small instances of tax evasion committed by college students working under the table can have a large impact on the tax system, she said.

“There’s a lot of literature out there about the idea that even small instances of tax evasion end up undermining the tax system as a whole,” Faulhaber said. “The idea is if you know that your neighbor is not paying taxes, or you know that the guy down the street is not paying taxes, then why are you going to pay taxes?”

Some college students said that working under the table presents the best option when it comes to finding employment.

“Babysitting has always been a super easy and flexible job, and I just needed quick money,” said another BU student who asked to remain anonymous for legal reasons. “My schedule is always super packed, so babysitting was always the best option rather than getting a job with a weekly schedule.”

She has babysat for three children and one dog once a week for $12 an hour for the past two years.

She, the BU musician and both of their employers could be liable for tax fraud if discovered, a crime punishable by different levels of jail time depending on the circumstances, Faulhaber said.

She added, however, that these particular students might not necessarily be charged.

“It’s less likely that something is going to rise to the level of criminal tax fraud if it’s somebody working under the table for a short period of time for a small amount of money without really knowing what they’re doing,” she said.

The BU musician, who said his drumming gigs supplement his legal, day-to-day job, does not spend a lot of time worrying about the repercussions of being paid under the table.

“If I haven’t been [caught] yet, I just assume I’m not going to,” he said. “There have been cops at the venue. They’ve seen the owners pay us. It doesn’t seem to be an issue for them.”