Is it illegal to pay someone in cash so they don't have to pay tax? What are the consequences?

Yes, deliberately hiding income to avoid taxes is illegal - for both of you. This is called tax evasion. For your neighbor (the business owner): He's required to report all payments to workers, whether they're employees or independent contractors. If he's paying you as an independent contractor and it's over $600 for the year, he should be giving you a 1099-NEC. If he's treating you as an employee, he needs to withhold payroll taxes. By paying "under the table," he's avoiding payroll taxes and proper business expense documentation. For you: All income is taxable regardless of how it's paid. The IRS doesn't care if you're paid by check, cash, Venmo, or bartering - it's all considered taxable income that needs to be reported. Penalties can include fines, interest on unpaid taxes, and in serious cases, criminal charges. The business owner typically faces more severe consequences as they have additional reporting requirements.

I was in almost the exact same situation last year working for a local contractor. I was getting paid cash for weekend jobs and didn't think much about it until I started wondering about my tax situation. I did some research and found this tool called taxr.ai (https://taxr.ai) that helped me understand my obligations and figure out how to properly report my income. The site has a really useful section about independent contractor income and how to handle cash payments. It walked me through exactly what forms I needed and how to report the income even without getting a 1099. I ended up filing properly and actually qualified for some deductions I didn't know about, which offset some of the tax impact.

Just wanted to follow up - I ended up trying taxr.ai after posting my question here. It was super helpful for my situation! I've been getting paid in cash for my weekend bartending gigs and had NO idea how to handle it properly. The site helped me understand I could file as self-employed using Schedule C and actually claim deductions for things like my mixology tools and part of my phone bill since I use it for work. It also calculated what I should be setting aside for taxes each month so I'm not screwed at tax time. Honestly wish I'd known about this sooner instead of stressing about the whole cash payment situation. Definitely recommend checking it out if you're in a similar boat.

After years of dealing with tax issues as a freelancer, I found that sometimes you really need to talk to an actual human at the IRS to resolve situations like this, especially if you're trying to get right after not reporting income. But as we all know, getting through to the IRS is IMPOSSIBLE. I discovered this service called Claimyr (https://claimyr.com) that actually gets you through to a real IRS agent without the endless hold times. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. I was skeptical but it literally got me connected to an agent in about 20 minutes when I had been trying for DAYS on my own. I needed guidance on how to properly amend previous returns where I had unreported cash income, and the agent gave me clear direction without any judgment. Saved me from potential penalties by handling it proactively.

I have to admit I was COMPLETELY wrong about Claimyr. After posting that skeptical comment, I decided to try it myself because I was desperate to talk to someone at the IRS about some unreported cash income from my side gig. I had been trying to get through for literally weeks with no success. Claimyr got me connected to an IRS agent in about 35 minutes (while I was watching TV, not actively waiting on hold). The agent helped me understand my options for reporting previous cash income and setting up a payment plan for the back taxes. I'm still annoyed that such a service needs to exist in the first place (the IRS should be more accessible!), but I can't deny it works exactly as advertised. Saved me hours of frustration and helped me get my tax situation straightened out.

Speaking as a small business owner, let me clarify something important: paying in cash itself is NOT illegal. What's illegal is not reporting that income/payment. I have some employees who prefer cash payments (perfectly legal). I still: 1) Run it through payroll 2) Withhold the proper taxes 3) Issue W-2s 4) Pay employer payroll taxes Your neighbor is suggesting tax fraud, not a convenience. If he was legitimate, he'd say "I can pay cash, but I'll need your SSN for the 1099." The fact he specifically mentioned avoiding taxes is a red flag.

I see comments about the "consequences" but let's be real - the IRS goes after big fish. I've been paid cash for odd jobs for YEARS and never reported it. No audit, no problems. Just sayin...everyone acts like the IRS has magic powers but they're understaffed and focusing on millionaires, not your $300 landscaping gig lol

I completely understand your concern about this situation, Jamal. Your instincts are absolutely right - what your neighbor is suggesting is tax evasion, plain and simple. Here's the bottom line: You're required to report ALL income, regardless of how you're paid. At $300 per job doing 2-3 jobs monthly, you're looking at roughly $1,800-$2,700 per year. This definitely needs to be reported on your tax return. Your neighbor also has obligations - if he's paying you as an independent contractor and it totals $600+ per year, he should issue you a 1099-NEC. If not, you still need to report it as "other income" on your return. My advice: Start tracking all payments from now on, set aside about 25-30% for taxes (income tax plus self-employment tax), and consider making quarterly estimated payments to avoid a big bill next April. You might also be able to deduct work-related expenses like tools or mileage. Don't let your neighbor's casual attitude toward taxes put you at risk. The "everyone does it" mentality doesn't protect you from penalties, interest, or potential criminal charges. Better to handle this properly from the start than deal with IRS problems later.

Just want to echo what others have said - your gut feeling is absolutely correct. This is tax evasion, not a "tax headache avoidance strategy." I work in tax preparation and see people in similar situations all the time. The "everyone does it" line is classic - it's what people tell themselves to justify risky behavior. But the reality is that unreported income catches up with you eventually, often when you least expect it. A few practical points for your situation: - Keep detailed records of all payments (dates, amounts, work performed) - You'll likely need to file Schedule C for this self-employment income - Don't forget about self-employment tax (15.3%) in addition to regular income tax - Consider quarterly estimated payments if this continues The peace of mind from doing things correctly is worth way more than the temporary "savings" from hiding income. Plus, as a legitimate business expense, your neighbor can actually deduct what he pays you - so there's really no good reason for him to want to hide these payments other than avoiding his own tax obligations. Better to have an honest conversation with him about proper documentation, or find a different side gig if he's unwilling to do things legally.