The Problem with Not Paying the Tax Man

Lots of folks get paid in cash.  I understand that.  I used to get paid in cash for a variety of jobs I’ve had.  Lots of people also get paid a “per diem” or mileage or other payments from which the employer does not deduct taxes.  Generally, that’s not a problem.

It can become a problem, however, if your income is not reported.  Why?  Well, for one, not paying your taxes and hiding your income is illegal, but that’s not the point of this post.  The real problem from the standpoint of personal injury is that if you don’t report your income and don’t pay your taxes, then if you get hurt, become disabled, or have some other type of loss, you can’t prove your losses.  If you do prove your losses, you are essentially admitting to cheating the tax man!

Not reporting your income also affects your social security.  If you don’t pay enough into the social security system (what’s sometimes called “having enough quarters”), you can’t get social security disability payments.

Some of BP oil spill claimants learned these lessons the hard way, as the newspapers reported recently in a story called “The fisherman and the tax man.”  After years of getting paid in cash and not reporting it, many of them found themselves stuck when they went to make claims for lost income from the spill.  When asked to prove their lost wages, they couldn’t do it.
Why? They never reported them and neither did their employer or anyone else.  The result? Claim denied.  Ouch.

Another good example is allowing an employer to pay you “wages” through a “per diem.”  I see this in some cases with truck drivers.  The reason an employer might “pay” you by using a per diem is that he doesn’t have to pay payroll taxes on the amount he/she gives you as a per diem.  You also don’t pay income taxes on it.  This saves you both money.  Problem is that if you get hurt, have a workers compensation claim, or a third-party claim, the per diem may be counted as income.  Bad for you, good for the employer and the insurance company.

I get the fact that times are tough and earning money in cash or through other means is attractive.  I’m just saying that sometimes you need to be careful.  What may seem like a good deal today, is not always a good deal for the future.