Waitresses,Babysitters Are Tax Cheats

An Economy Under The Table

When you think of a tax cheat you most likely think of some rich fat cat taking advantage of loopholes and offshore accounts.  The truth is there all around us, in forms you’d never expect.

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Just the other day I was out having lunch with a friend when I overheard a waitress having a conversation with the table next to me…  “The problem with this country is the rich aren’t paying their fair share”

When I heard this I nearly spit out my lemonade across the table.  While this young lady is certainly entitled to her opinion this is definitely a case of the pot calling the kettle black.

Waitresses, babysitters, maids… all lines of work in which the main type of payment is cash, who usually under report or don’t report their income at all. Making money under the table can seem like a dream come true for a worker. You don’t have to give Uncle Sam their cut and the worker keeps it all for themselves.  Though, is it as harmless as you think for both them and us?

It’s really all how you look at things. If instead of waitress, babysitter and maid I said undocumented worker, freelancer, and tax cheat your opinion of getting paid under the table might have been different.

In truth both sets of descriptions are correct. People who get paid under the table, in cash, without reporting their earnings to Uncle Sam are both babysitters and tax cheats.

The reason people do this is quite clear, tax avoidance. Income taxes, social security and any state taxes can easily eat up one-third of a laborer’s fee.

Other times people do work off the books so they can keep their government benefits. For example, people receiving disability or benefits from the government are often put on income restrictions. Meaning that if they earn over a certain amount of money each year they will lose their government assistance checks.

But before you go and ask your employer to start paying you in all cash you should know it’s not all roses when it comes to undocumented income. Many freelance workers will tell you’d they’d rather pay taxes then risk being caught.

Having income that doesn’t show up on your tax returns makes it hard to qualify for any kind of loan. Car loans and home loans require you to show tax returns from previous years. Many freelancers run into problems when they show tax returns with low income. Auto lenders, brokers and mortgage people will not just take your word for it that you can afford it.

Most employers refuse to pay workers under the table not only because it’s illegal, but also because it does not benefit them in any way. Businesses can deduct any money they pay you as an expense on their taxes thus reducing their own tax bill. If they don’t submit your information they not only can’t deduct that expense, but they can also be fined and reprimanded by the IRS if caught. Unless a worker significantly cuts their fees this is not a viable option for most employers.

In the end the risk versus reward is simply not there. Even if an employer says he’s not going to report what he paid you to the IRS, he can always change his mind. Misreporting your income, whether planned or not, can earn you penalties, fines and more. Constantly living in fear that the IRS will find out your unreported income is not worth the stress.

In truth this isn’t something the rich are doing to make their wealth. This is something that is typical of people earning minimum wage or less.  It becomes much easier to sympathize with the poor or underprivileged than with the government or IRS.  The government and IRS are the ones who are creating tax loopholes for big corporations like General Electric, Exxon-Mobil and Bank of America.  It’s hard to feel sorry for the government and big businesses when the answers to our federal debt problems and budgetary issues could be solved by forcing everyone to pay their taxes.

Despite this argument, I see unreported income as a personal threat to my family and really it’s unfair to all of us that do pay our taxes. Workers that hide income from Uncle Sam put more of a tax burden on us to cover their share. It’s estimated that 1.8 billion people worldwide are part of the “informal workforce,” according to the Organization for Economic Cooperation & Development. This leaves hundreds of millions of dollars in uncollected tax revenues by the states and the federal government, which makes it hard for them to fund education, police, and fire and rescue services.

Whatever temporary benefits one might gain from misreporting income to the government, the long term consequences for themselves and for all of us are not worth it.

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Keeping Money in Your Pocket,

Nancy Patterson

23 Responses

  1. Milton Brown

    I know no one hears anymore.
    I know politicians don’t listen.
    I know with numbers in the trillions, few can add.
    But, can anybody spell?

    F-L-A-T T-A-X

  2. jake bogis

    You’ve got to be kidding! You mention in passing, EXXon, General Electric, B of A, as if it is a casual nuisance that the Government gives them a free pass. Then you stick by your guns that the waitress under reporting is a “threat to you and your family”???!! Hello: General Electric had in excess of 10 Billion in profits in 2010, and paid ZERO, yes ZERO, taxes. So we should be concerned with waitresses who are at subsistence level, and cannot realistically afford to pay a penny of tax on all those “Big” tips. The waitresses are being ripped off by a corrupt system. You are supporting that corruption with your skewed perspective spin. So god bless the Mega Corps. We all need their “trickle down” wealth, right! Brilliant theory which has made the US into a war mongering hollow “super power” without a middle class, quickly disintegrating into 3rd world quality of life. And you use your pen to accelerate the demise. Does this make you feel proud, to be such a true blood “conservative”? What exactly are you conserving?

  3. Larry Miller

    It is bad enough they don’t report their tips or work they do for individuals who likely don’t report a payroll or on a 1099, but the sad part is that too often those same people who get paid under the table are also getting Welfare or Unemployment Benefits or Disability Benefits and all the Agencies who approve & make those payments don’t seem to attempt any enforcement of what would usually be obvious if they would but make personal visits to observe their relative life styles & habits! So the cost paid by those who do pay is probably far in excess of what goes under the table !

  4. bluqe

    YOU FORGOT THOSE IN GOVERNMENT POSITIONS, CONGRESS PERSONS, POLITICAL APPOINTEES, ELECTED OFFICALS, YOU KNOW THOSE THAT HAVE TO SWEAR AN OATH TO OBEY OUR LAWS. yET YOU MANAGE TO COME UP WITH BABYSITTERS AND WAITRESSES.I REALLY BELIEVE IT IS THE POLLS WHO WIN HANDS DOWN ON THIS. THEY TRUELY ARE THE WORLDS BOTTOM FEEDERS.

  5. Chris

    This is why for the last several years I have been strongly in favor of a national sales tax (HR 2525) – to REPLACE the current income tax system which is a behemoth of insane proportions. One of the benefits of the NST is that EVERYONE whether they want to or not WILL pay their fair share, based on how much they SPEND, not earn. This will be an immediate boost to the US economy. Think about it – it will capture even illegal alien spending. It will also remove the burden from 100 million wage earners having to file returns every year (only businesses that sell good would be required to file). Exemptions can be made for poor or under income earners, or even children, so that objection can easily be debunked.

  6. Phi

    I don’t like it either but I do as directed. The other issue that is ugly is having everyone become ‘tax cheat’ reporters. I personally know that if our company is ‘caught’, we would be forced out of business which means jobs lost. What a mess!

    Looks like both options are ugly, Ugly, UGLY!

  7. Liane

    Here in Michigan, 15-20% is automatically deducted from their pay and having waitressed for years while putting myself through college, I can tell you that very few people actually tip waitresses 15-20%. Our base pay may be $2 to $3 an hour. I’d like you to try and live on that. We are not tax cheats! The giant corporations who have taken billions in handouts from the government and then still get outrageous breaks are screwing our Country far more than these menial workers that can barely put food on the table. Yes, everyone should pay their fair share of taxes. But it’s idiotic beyond all common sense to place the blame on poor people .

  8. Dave

    Your comments about those Major Corps. being further taxed and burdened by regulation, resulting from more tax,makes me spit my Lemonade! Shame on ya’s…

  9. Linda N

    Thank you for addressing this issue. I am an Enrolled Agent and have been working as a tax professional for 30 years. Basically, when people don’t pay taxes on their income, the rest of us pay it for them. I’m tired of paying more so some people don’t have to pay at all.

    Even though it would mean I wouldn’t have much work, a national sales tax is much more fair. Even criminals buy things and would then have to pay.

  10. Melvin Jethro

    if you check with a watress they do not make minum wage. before you start bad mouthing people you should check on what you say about them. and get the facts right.

  11. DIANE

    That REALLY IS GOING TO SAVE THE USA . GOING AFTER THE PEOPLE WHO ARE ALREADY “TRYING” TO SURVIVE. WAITRESS DON”T EVEN MAKE MINIMUM WAGE & OTHERS JUST MAKING MINIMUM WAGE CAN”T AFFORD HEALTH INS ON THEIR OWN & THE PEOPLE WHO HIRE THESE PEOPLE CAN”T AFFORD TO OFFER AFFORDABLE HEALTH INS.
    That brings up the UNAFORDABLE OBAMACARE. ALL THESE PEOPLE WOULD BE PENALIZED FOR NOT BUYING OBAMACARE BECAUSE NONE OF THESE WORKERS OR EMPLOYERS CAN AFFORD IT OR THE PENALITY THEY WOULD GET.
    . HOW WOULD THAT HELP THE USA . DAH
    IT WOULD HELP AS MUCH AS THE WHOLE YEAR WASTED ON OBAMACARE . RATHER OBAMA & HIS DEMOCRATIC CONGRESS AT THE TIME COMPLETELY WERE OBLIVIOUS TO THE UNEMPLOYMENT AROUND THEM. NOW ALL AT ONCE SINCE THE REPUBLICAN’s TOOK OVER CONGRESS SEATS DID THEY SEE THE LIGHT.HARRY REID STILL DOES NOT REALIZE WHERE ALL THAT UNEMPLOYMENT CAME FROM.THOSE AUTO FACTORIES & MANUFACTURING PLANTS THAT WERE SHUT BY GM & CHRSLYER ECT.DAH ! WHERE WERE THEY WHEN THESE PLACES WERE ALL BEING SHUT.& GUESS WHAT NEARLY EVERY UNEMPLOYED PERSON CAME FROM THAT BACK GROUND. THAT JUST SHOWS US NONE OF THE BIG WIG DEMOCRATES LIKE HILARY & HARRY & OBAMA & NANCY EVEN KNOW WHAT IS GOING ON IN THE OUTSIDE WORLD AWAY FROM DC.THEY ACT LIKE AMERICA IS ALL RICH LIKE THEY ARE.HAND OUTS ARE ONLY GIVEN TO ILLEGALS NOTHING TO AMERICAN CITIZENS THAT HAVE BEEN LOST IN THE SYSTEM. GOD FORBID IF THOSE DEMOCRATES GET BACK INTO CONGRESS & SENATE AGAIN AFTER THOSE STUPID RECALLS -RECALLED BY THOSE SORE UNION LEADERS AGAINST CONGRESSIONAL’S VOICING A DIFFERENT OPINION THAN THEY HAD. WHERE IS THE FREEDOM THERE??? ALL THOSE THOUSAND OF $$$ UNIONS ARE SPENDING TO SLING MUD -THEY COULD BE USING THAT MONEY ( GIVEN TO THEM BY THE PEOPLE THEY ARE SUPPOSE TO BE HELPING > THOSE “POOR” TEACHERS & PUBLIC WORKERS THAT NOW ARE SUPPOSE TO PAY THEIR OWN WAY FOR HEALTH INS & PENSIONS. THAT IS WHERE THE MONEY SHOULD HAVE BEEN COMING ALL THESE YEARS IN THE 1sT PLACE -FROM THE UNIONS, but NO THAT MONEY WAS COMING FROM THE UNITED STATE’s GOVERMENT.SO WHAT WAS THE UNION DUES USED FOR ALL THESE YEARS ?? ASK THOSE FAT CAT OVER THE TABLE TAKERS -& THEY GOT AWAY WITH IT ALL THESE YEARS WITH NO QUESTIONS ASKED ! WOW! & WE ARE NOW WORRIED ABOUT THE UNDER PRIVILEDGED WORKER NOR REPORTING ALL OF THEIR WAGES TO UNC SAM. THESE PEOPLE IN REALITY SHOULD NOT HAVE TO REPORT ANYTHING TO UNCLE SAM -BUT I GUESS THEY MIGHT BE THE ONLY PEOPLE EMPLOYED PAYING INTO THE SYSTEM. I GUESS ALL THOSE COINS ON THE GROUND REALLY GET IN THE WAY OF ALL THE BIG $$$$ GETTING PAST THE EYE’s VIEW. OPEN YOUR EYES PEOPLE SHUTTING ALL THOSE FACTORIES -OBAMA”S IDEA-NOT BUSH. WAS A GOOD WAY TO PUT NEARLY THE REST OF THE USA -OVER A MILLION UNEMPLOYED -AT THE MERCY OF THE GOVERMENT. ONLY THING THE GOVERMENT CAN”T AFFORD TO TAKE CARE OF EVERYONE. So WHAT NEXT CONCENTATION CAMPS FOR THE UNEMPLOYED SO THEY CAN START TAKING CARE OF THE GOVERMENT . YOU KNOW WHAT THAT IS CALLED ! HEAVEN FORBID GOD SAVE YOUR PEOPLE I THE USA! Who EVER BACKED OBAMA MAY BE GETTING HIS PLAN FINISHED SOONER THAN PLANNED -LESS THAN 4 YEARS.

  12. what about irs personnel who don’t pay their taxes? and what about irs personnel who WRONGFULLY assess taxes that are due?

  13. John

    With 99% of the budget going to military spending, and God only knows how much waste there may be there, THAT should be where spending cuts are made. We don’t have any problems that couldn’t be solved by cutting military spending. The gov’t spends $10 million a DAY just on sending planes to support the opposition in Libya (not that there isn’t a moral issue here).
    Inflation, at about 5%/year could easily be curbed by forcing banks to actually lend their money rather than creating transaction accounts credited with FRNs out of thin air. Can you say “illegal”, can you say “changing the terms of the conract”, can you say “no equal consideration”, can you say “no risk for the banks”?
    I don’t want to hear anything about babysitters and waitresses or anyone else cheating on taxes when the gov’t allows these practices to continue. Think I’m wrong? Download a copy of “Modern Money Mechanics” published by the Federal Reserve Bank of Chicago. Depending on your copy, see the bottom of page 6 and/or the top of page 7 to verify that banks do not lend money, but act as though they lose when you don’t pay. Talk about cheats? You are expected to pay back the non-loan with interest. Doesn’t matter what kind of “loan”. The gov’t allows it because it needs the FRB to fund it’s insane spending (on things that you, if you knew about, would never support). The stripping of your Constitutional rights is directly related. Oh, yeah.
    “taxes shall be apportioned”.

  14. Nancy Patterson

    Thank you everyone for commenting. This is clearly a hot button issue. First off, this is not meant to be an attack against waiters or waitresses. It’s really a point of how the underground economy affects the rest of us. Yes, I know waiters base wage is below minimum wage. However tips bring that hourly income up. While there are waiters that struggle not every waiter is living at the poverty line. Some do quite well. Plus there are plenty of poor people who work jobs and pay taxes like the rest of us.

    A few of you bring up the idea of a national sales tax. This certainly is an interesting idea as everyone needs to buy stuff and would be taxed accordingly. In this case we would grab tax revenue from people who make money both legally and illegally.
    @Larry Miller also brings up a good point I touched upon in the article. People who take under the table jobs while continuing to receive unemployment and other benefits.

    I also understand there are other tax cheats out there. While this would really be a topic for another article, there are some major differences between personal and corporate profits.

    I greatly appreciate the feedback and enjoy the debate this has brought up. Thank you for reading and please feel free to post your comments here.

  15. maria rose

    if all of us could keep 80% of what we earn no matter how much we make it would generate more for the economy than different tax rates per amount earned. i guess this what some people call a flat rate in taxes. just in myself alone i would have 15% more income to spend, as i now pay over 35% in taxes even though i only make around $35000 yearly. i am considered rich by those in the know. i qualify for no help from any benefits and have to pay full cost for any i get. what we need is a way to make everyone help out not just one group over another.

  16. Bobbie

    Why are you picking on traditionally female jobs? Women still make 75 cents for every dollar a man makes, all parameters being equal. How about construction workers? The real cheats are the lawyers who charge for a quarter hour when they speak to you on the phone for 1 to 15 minutes, and the dentists who charge 185 dollars for a simple filling. How many tables would you have to wait on to have enough to get one tooth fixed? When is the last time you cleaned the bottom of a stranger’s child so you could have the privilege of making minimum wage or less, or changed the sheets of a stranger? People who take these jobs do the rest of us a huge favor for which they are grossly underpaid. Shame on you.

    League of Power Replies:

    This is not meant to be an attack against waiters or waitresses or women for that matter. It’s really a point of how the underground economy affects the rest of us. We’re deeply sorry if that is how it was perceived or if it came across negatively. That was not our intent. In fact, you make a very strong point about the construction industry. Construction is probably the most commonly used example and we considered referencing it, but it’s just so overused. In this article, we wanted to provide examples that are often overlooked, examples that perhaps people hadn’t considered before. Try not to get caught up on the specific example, but rather seek to understand the message we’re trying to convey. Weather you are a huge company, profiting billions annually, or a waitress just barely scraping by, if you’re not reporting your income (especially if you’re receiving government benefits or subsidies), it has an immeasurable effect on the rest of us.

  17. Peter

    In old Supreme Court case, Hale V. Henkl et al, it is written that the individual owes nothing to society as long as he does not trespass on its rights.

  18. Robert Bishop

    Income tax and FICA are UNCONSTITUTIONAL because of not being applied per the Constitutional requirement of apportionment for direct taxes. Think! You trade your labor and skills for earnings but without you couldn’t live and prosper. You are taxed directly on your right to live and you ask your master in April if you can keep some for yourself! Slavery!

  19. paul

    This is nothing compared to the loopholes of big corporations. The courts ruled decades ago that ONLY the profits of corporate activity were taxable at all. The problem is that these corporations OWN the government.

  20. Beth

    @paul–Just curious–what else would be taxable besides profits for corporations?

  21. jane

    do your homework. waitresses do pay income tax. it is taken out at their place of employment. They know how much their sales are by their meal checks.

  22. Bridget

    On any given night I could make between 70 and 20 dollars in tips. Granted 70 is a nice chunk of change, it usually is accompanied with working a 7 to 8 hour shift, and waiting on up to 18 tables- which despite what you may believe is some of the hardest work I’ve done(I’m also at one of the top schools in the country, was a two year all-state athlete, ran two marathons, and taught myself how to read music and play the violin). Those “big “nights are also far and few between. The average is closer to about 40 dollars, which added to my 3 dollar salary adds up to about 8 dollars an hour. These tips are then declared at the end of a shift and I am taxed on that.
    I was born and raised in the US, I’m a college student, and have been a waitress for two years. I think it’s ignorant to imply that the majority of service industry workers are illegal or to say that the two groups are the same. Many of my co-workers are students paying off college loans, mothers making sure their kids stay fed, and honest people trying to make it in a world that is designed for bankers, lawyers and deluded men and women who believe that they have worked for all they have and were never once helped out by anyone else.
    I think it’s condescending to just write this off as a “hot-button issue”, because any person who has worked a service industry will tell you that it is hard, under-payed work, and based on my experience many who haven’t tips a super generous 12 percent… There’s nothing “hot-button” about it; you either know what you are talking about, or you assume and incorrectly define a topic based on ridiculous claims.
    Also, it’s your choice to eat out.
    If you are really concerned about me ripping you off than feel free to eat a pb&j at home.
    I have swept up after your child when you didn’t tell them to stop throwing torn up napkins, wiped up the table where you spilled ketchup, burned my hand carrying out hot plates, and done it all with a smile, a yes ma’am, and a thanks for stopping by.
    Your title and article offended me and made me seriously consider the level of understanding you hold on this issue. I’m not trying to attack the writer of this article, I’m sure you didn’t have bad intentions, but please stop looking for conspiracies and start actually looking into the topics you discuss.

  23. Sam H

    Some waitresses actually claim 100 percent of their tips, which they are required and instructed to do by any reputable restaurant employer. In return, their tips and their $2 an hour are taxed, leaving them with paychecks ranging from $0 to maybe $40 if you’re lucky, every 2 weeks. Maybe that will help you understand why some servers choose not to claim all of their cash tips.


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