Paying employees “off the books” is a practice that has been around as long as income taxation has existed.
Estimations on the value of the underground economy range from $2.25 trillion to $2.46 trillion.
By not recording payments that you make to employees and making fake check stubs you may think that you’re getting away without paying the IRS their dues. However, there are repercussions.
Is there a penalty for fake pay stubs?
The answer is a clear, yes.
We’ll explore what happens if you are forging pay stubs in your business.
What Is the Penalty for Fake Pay Stubs?
If you are caught not putting employees pay through your companies books, there will be serious consequences.
You may think that making a fake pay stub may be enough to cover your tracks; it doesn’t. Forensic accounting will find evidence of tax evasion.
If you are caught, you can face jail time for fake pay stubs. There are also substantial fines that could be in excess of $1 million.
Why do Employers Make Fake Pay Stubs?
Some employers may make cash-in-hand payments to their employees because they do not understand how employment tax works. However, generally, this is not the case.
Tax evasion saves both the employer and the employee money. And, by not declaring tax, employers may think that they can also employ illegal immigrants.
What Happens When You don’t Declare Taxes?
It might sound like a great idea to not deduct tax from your employee’s pay. You may think that you are doing them a favor.
You are not. By paying them under the table and not deducting taxes or declaring the payment, you are putting both you and your employee at risk of prosecution.
Not only that, but your employee may need financial records at some point. For example, they may be applying for a mortgage and will need pay stubs. Without evidence, they may not be able to get the mortgage they need.
Making Legitimate Pay Stubs
If you try and avoid paying taxes, you will eventually get caught out.
Ultimately, the best way around this is to pay people legitimately. Start off by making sure your employees are legally allowed to work. Find out their Employer Identification Number, then deduct and without taxes using the IRS tax deduction calculator.
You will need to submit tax returns for your company as well as completing your employee W-2.
Remember, once it is time to pay the tax bill, it is essential that you do this.
Use a check stub template to create a record of your payments to your employees. That way, they will have legitimate evidence of what they have earned and paid in tax.
To Avoid Penalties Don’t Use Fake Pay Stubs
If you want to avoid receiving a penalty for fake pay stubs, make changes and legitimize your payroll. The financial consequences of not deducted tax from your employees could be very large.
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