Withholding Tax May be Hazardous to your Quality of Life
On the news, they keep announcing all the gains that are being made in America over the course of the much-applauded recovery; companies are supposed to be turning out better profits, and companies are supposed to be generously adding to their jobs rosters all the time. Even so, compared to how many people are unemployed out there, these modest gains in corporate profits or jobs aren't doing anything that most people can see. The problem is, companies that have been making do with lean staff rolls over the past two years to make it through the recession, have somehow found this kind of efficiency addicting. They don't feel the need to hire anyone if they are getting along this way. In fact, considering that the recession isn't completely over, if anything, they are shedding still more jobs. The country actually lost 30,000 jobs in February. What does the IRS think people do when things are so desperate? For whatever work they can find, will people like to go for full disclosure and pay taxes, or would they like to put a little by, picking up a little unreported money on the side and withholding tax?
There are all kinds of ways this can be done. If it isn't slaving away at another job on the side, it could be getting a job and still claiming unemployment benefits. Whatever way you do it, if you keep a part of your income off the books by accepting your pay in cash, chances are pretty high that the IRS will somehow get wind of this. As has been reported over and over again, they have been pumping it up at their enforcement department and are better equipped now than ever before at finding out anyone trying to get by withholding tax from them. If you don't declare all your income, you're just setting yourself up possibly, for a lot of penalty pain, and missing out on a bunch of benefits too. Let's draw a picture of all that is involved, shall we?
Most workers who have been withholding tax for a while, can simply wipe the slate clean by putting in a late tax return, or alternatively, filing an amended tax return for an earlier incorrect one. If you don't have your paystub or a W-2 form, you can just make a reasonable guess, and you'll be spared. And what about those penalties? If you pay your taxes late, you owe the IRS 0.5% of your taxes due each month; and then there is the late filing fee too. Frequently, you'll end up paying them more than you make. However, if you are caught before you throw yourself on the IRS' mercy voluntarily, you could owe twice what you make that year. Unless of course, the IRS feels in some specific case that there is mental illness involved in the desire to be withholding tax. And on top of that, whatever unemployment benefits you received, you owe the government those back too.
Long-term, there are all kinds of adverse consequences that withholding tax can have on your quality of life. To begin with, you put your Social Security benefits at risk; and should you need disability benefits later on, those become very difficult too. To actually qualify for Social Security benefits, you need to have worked and paid Social Security taxes for a minimum of 10 years. And if you work fewer than 35 years in your life, that lowers your Social Security standing.