If you get paid under the table, you have several options to prove your income depending on the situation.
You Get Cash But You Report Everything
If you get cash but you report all of your income, proving your income can be fairly simple.
Most landlords and lenders will accept your recent tax returns.
If you need more recent proof of income than your last tax return or want to protect yourself from an IRS audit, take these additional steps:
- Issue a receipt for every payment you receive and keep a copy.
- Immediately record all payments in your accounting records. You can use a paper log or use accounting software with a mobile app.
- Deposit all money you receive to the bank as often as possible — preferably daily. Don’t keep any cash to spend — deposit it then make an ATM withdrawal to show your full inflows and outflows.
You Get Cash But You Don’t Report Everything
If you get cash but you don’t report everything, you may have a problem.
You obviously won’t have tax returns showing your full or any income when tax returns are usually the main way to prove income.
You may also not have bank deposits or other paper trails because you didn’t want the IRS to discover your income.
You’ll need to find what proof you have such as contracts, text messages, or other documentation. You may also need customers to vouch for your income.
This proof might be enough for a small landlord, but you’re probably not getting a mortgage.
The best thing to do to prove your income going forward is to talk to a tax accountant and file the tax returns you should have filed. If you keep trying to hide your income, you’re going to keep having problems proving your income.
Ps. Don’t forget that tax evasion is a crime and there’s no time limit for the IRS to catch you.
Your Employer is Breaking the Law
If you work for a business, you should generally be getting a 1099 or W-2 from that business at the end of the year. Sometimes, it’s the business rather than the employee that creates an under-the-table arrangement as a way to save on taxes and accounting costs.
No matter who wanted to keep things under the table, you’re still in one of the two situations above. You either have other proof of income like bank statements or you don’t.
Not having tax forms can cause you more problems than not having proof of income. For example, your earnings won’t count towards your Social Security earnings history, and your retirement benefits will be lower.
If you need to make sure your employer is reporting your income to the IRS, you can use IRS Form 3949-A. Form 3949-A reports tax fraud and means your employer may face fines or criminal charges
Reporting an employer for tax fraud can be a good deal, but if you needed to read this post, you can see why the IRS treats employers who pay under the table so harshly.