Paying Employees in Cash in Illinois: An Overview of Payroll Tax Considerations

For several different reasons, both an employer and an employee may want to deal with each other in cash. Under state and federal law, Illinois employers have the right to pay their employees in cash. However, doing so also creates some challenges, particularly around the issue of payroll taxes. In this post, our Illinois payroll tax lawyers explain the most important things companies and organizations should know about paying employees in cash.

Business Can Pay Employees in Cash, But Must Still Account for Payroll Taxes

When a company opts to pay employees in cash, it does not affect its underlying payroll tax obligations. However, you still need to plan for payroll taxes. According to the Internal Revenue Service (IRS), employers still have a legal responsibility to report income and employment taxes withheld — regardless of the method by which a worker was paid. If your company or organization pays employees in cash, it is imperative you do the following four (4) things:

  • You must accurately report wages earned to the IRS;
  • You must properly withhold payroll taxes; and
  • You must keep accurate records employee hours worked and wages earned; and
  • You must be in full compliance with all payroll tax laws.

What to Do if Your Company is Facing an IRS Investigation for a Payroll Tax Violation

Companies that opt to pay employees in cash may be at a higher risk of running into payroll tax questions from authorities. In fact, the IRS sometimes views large cash payments of wages as a sign of tax avoidance strategy. Employers facing an inquiry into their practices need to be proactive. Here are three (3) steps to take if your business or organization is being investigated by the IRS for an alleged payroll tax violation:

  • Do Not Panic: Review all notices you received from the IRS and determine exactly what the agency is alleging/investigating.
  • Get Organized: Carefully prepare all relevant financial documents, records, and information .
  • Seek Professional Support: An experienced Illinois payroll tax lawyer takes action to protect your rights and help you come to the most cost effective, efficient resolution.

All payroll tax cases are different. In some circumstances, you may have well-documented evidence taxes were properly withheld and paid. On the other hand, some employees may need to seek an arrangement with the agency to resolve any outstanding payroll tax issue. An attorney will help you chart the best path forward.

Call Our Chicago, IL Payroll Attorneys for Help with Your Legal Case

At North Suburban Legal Services LLC, our Illinois payroll tax lawyers have a comprehensive understanding of state and federal regulations. If you have any questions about paying employees and cash and your payroll tax obligations, we are more than ready to get started on your case. Contact our law firm now for a strictly confidential initial consultation. We represent clients in Chicago, Cook County, and throughout the surrounding region in Northern Illinois.

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