<p>I'm under 18 and have been working at a local restaurant since last spring. I get paid $8 an hour under the table. I know that my boss writes down how much he is paying me each time, yet I am definitely not on official payroll. It's an important part of my life and takes up a lot of my time; I listed it as my number one extracurricular on the Common App, which I have already submitted to a school ED and some other early action schools. I never considered being paid under the table a significant problem until today when I started filling out the CSS for the early decision school. Does anyone have any advice on what route I should take with this?
PS: the early decision school is need-blind.</p>
<p>You need to report the income for financial aid purposes. You should file a tax return at the end of the year, reporting what you have been paid. As part of filing your taxes, you will need to pay self-employment taxes, which is basically the full amount of Social Security and Medicare taxes (including the half that an employer normally pays) that otherwise would have been collected each pay period if you had been an “on the books” employee.</p>
<p>There is the potential that filing taxes will cause problems for your employer. Your boss is breaking the law to save money, at your expense.</p>
<p>Edited to add: I should say that it sounds like your boss is breaking the law. I have heard of situations where certain restaurant employees are classified as independent contractors, but that relationship is fully understood by all parties and relevant tax and employment laws are followed. I’m assuming that this does not describe your situation.</p>
<p>That does sound tough. It would be unethical (and illegal) to fill out any federal financial aid forms with false information such as reporting income from employment as $0. On the other hand, you might not get caught. Personally, I would do the right thing here and comply with the applicable regulations. If you lie and get in trouble over it with your college you could potentially lose any aid that you might otherwise be qualified for, as well as (potentially) some fines.</p>
<p>You’re working 20 hours/week as a restaurant hostess, which is a substantial amount of time for a high school senior. You’ve noted on your ED application that this job is an important part of your life. Since your ED application is for a need-blind school, it’s likely that your application for admission and your financial aid documents will not be seen by the same person, so if you listed zero income for 2014 on your FA documents, it’s possible that no one at the school would ever notice the discrepancy. But I think you know that wouldn’t be the right thing to do. Sometimes doing the right thing is hard. But knowingly doing the wrong thing, and then continually looking over your shoulder to see when the other shoe is going to drop, is a sucky way to go through life.</p>
<p>You should have a little chat with your boss, and find out if you are classified as an employee (he would have to file some tax paperwork for you) or if you are classified as a contractor (you would be responsible for all of your own taxes). If you are a contractor/self-employed you need to file the Schedule C and Schedule SE when you file your federal income tax return. Read about it at <a href=“http://www.irs.gov/”>http://www.irs.gov/</a> Depending on the amount of money you make during the year, it is possible that you won’t owe any federal income tax, just Self-Employment tax.</p>
<p>Note that the threshold for having to file if self-employed is $400, much lower than with W-2 income.</p>
<p>First of all, there’s no possible way a restaurant employee could be classified as an independent contractor, so ignore that.</p>
<p>OP, when you agree to be paid “under the table”, this is the mess you get yourself into–your parents never should have allowed this to happen. I suggest you find a legit job before the beginning of 2015, so you won’t have the same issue for next year’s financial aid application. As for this year, you should report the income and file the taxes for 2014 as recommended above. Your employer won’t be thrilled, but that’s the risk he took by evading the law, and you should have a different job anyway by the time you file and won’t even need to discuss t with him.</p>
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<p>There’s a well-known (locally, at least) drive in restaurant near me that has “car hops” for eat-in-your-car service. The car hop comes to your car and takes your order, then goes back inside to give the order to the kitchen staff. When the food is ready, the car hops delivers the food to your car on a tray that clips on a partially rolled down window, and the customer pays for the meal (CASH ONLY, no credit cards or checks).</p>
<p>Guess what? The car hops are all independent contractors. They buy the prepared food from the restaurant and then sell it (presumably at a higher price) to the customer. They make pretty good tips, too. The only “real” employees are the kitchen staff. The business owners don’t have to worry about all sorts of things for the waitresses/car hops that they would otherwise have to deal with. And based on the waiting list of local young women (and the car hops are all women) who would like to have this job, I’m betting that they are happy with the arrangement and make pretty good money.</p>
<p>But just because this restaurant is treating the car hops as independent contractors, doesn’t mean it is correct.</p>
<p><a href=“http://art.mt.gov/artists/IRS_20pt_Checklist_%20Independent_Contractor.pdf”>http://art.mt.gov/artists/IRS_20pt_Checklist_%20Independent_Contractor.pdf</a></p>
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<p>And it doesn’t mean that it isn’t correct either. This particular business has been operating this way for decades. As I mentioned, it is a well-known establishment. I have to believe that if they’ve been doing something wrong that violates tax and employment law, the proper authorities would have been alerted and stepped in with corrective action. I don’t know enough about the business practices of this business (and neither do you) to comment on particular points of the checklist that you linked to.</p>
<p>Delivery people working for restaurants can be paid as independent contractors. Perhaps the car-hops are treated that way. They more-or-less fit the description of delivery people.</p>
<p>To be independent, you are supposed to have control over your own hours,own licenses, quality of the work or product. These car hops aren’t delivering food, per the positing, they are reselling it. I doubt that they have licenses to sell food, control their own hours, control the quality of the product.</p>
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<p>That’s true. The fact that it is a restaurant and the servers are independent contractors is not a red flag.</p>
<p>What IS a red flag is when one of the independent contractors is a minor (not necessarily a problem by itself; indeed, many common jobs for minors are as independent contractors) AND when that independent contractor doesn’t seem to understand what their status entails (which you mention earlier). </p>
<p>I can’t think of too many reputable places that hire independent contractors, pay them under the table, and don’t even mention the self-employment tax implications or their status as independent contractors. The two areas combined are worrisome to me; when my firm hires contractors, we make it clear what they are up front, and these are adults with decades of business experience who probably know the spiel frontwards and backwards and could repeat it to us verbatim if they wanted. If it’s common practice to do that for experienced adults it seems strange that the OP’s employer doesn’t do that for a high school aged minor.</p>
<p>I’m sorry that this thread got off track with talk about independent contractor vs. employee. I was reacting to another poster who said that what I posted couldn’t possibly be true and should be ignored. Based on what the OP has said in this thread and another, it’s highly unlikely that her boss considers her to be an independent contractor. My advice stands - she should declare her income on the financial aid forms, and she should file 2014 taxes as well to pay the self-employment taxes (and, if required, any income tax).</p>
<p>I agree with MiddKidd. You absolutely are required to put your earnings on the financial aid forms…and if you do that, you really need 2014 taxes to match that income.</p>
<p>I am an independent contractor. One of the “tests” the IRS uses to see if you are legally an independent contractor is if you can make your own hours and if you can do the job wherever you want. You don’t have to be on site. A writer can be an independent contractor. An accountant can be an independent contractor. A private college counselor can be an independent contractor. But it would be hard for a waitress to do the job if she were not required to be at a certain place at a certain time. People may use the term “independent contractor” more loosely, but if the IRS ever audited that drive-in restaurant, the restaurant would owe a lot in back taxes.</p>
<p>Some excerpts from the IRS page:
“The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
“You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.”
<a href=“Independent Contractor Defined | Internal Revenue Service”>http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Defined</a></p>
<p>Thanks everyone, especially @MiddKid86, for the advice. I am discussing things with my parents and am hoping everything gets resolved soon. I do want to do the right thing - I am definitely not considered an independent contractor according to the conditions explained above.</p>
<p>@MommaJ I do agree and take responsibility for my actions, but please do note that this was my first real job. I was asked informally to work there and upon the first day I entered the establishment, my boss immediately had me begin working, without any explanation of taxes or employment laws of any kind. He also never explained the tip system, and has knowingly been taking my tips for several months, but this is an extraneous issue that does not need to be discussed on this thread. My point is that as a minor with zero work experience, I was unaware of my need to ever resolve these issues myself. I will make sure in the future to avoid any similar issues. Placing blame on my parents is not relevant to this discussion - I got this job myself in an attempt to lighten their burden in paying for the cost of my future college tuition.</p>
<p>@kgemini, I understand that a teenager is unlikely to be sophisticated about employment matters and taxes, and I’m sorry you found yourself at sea here. But there are many employers that want to take advantage of teen employees and engage in fraud, and that’s why it is in fact a parental responsibility to oversee a minor’s employment situation. Parents have many obligations with respect to their kids–this is one of them. </p>
<p>There are a few issues here. </p>
<p>1) One is that you need to report the income on your financial aid application, otherwise it is fraud to receive any aid . </p>
<p>2) The college is not too concerned with if you are filing taxes correctly or not. So if you don’t file it should be fine for your college aid forms. It will look a bit strange that you don’t have a tax return, and I suppose it is possible they could request one (maybe one of the people who know these details, like @sybbie can comment) but since you are over reporting and not under reporting it should be okay.</p>
<p>3) You should, however, report the income on taxes even if your employer doesn’t give you a W-2. Getting caught up on the wrong side of the IRS is serious business. Sure you can take a chance on not filing and hope it escapes notice. You can hope the college ignores that you have no tax document. But if you get caught you will pay fines and they are harsh.You can’t use being naive and not knowing anything as an excuse to break the law. </p>
<p>It is up to you to discuss it with the employer or not. You don’t have to. You can just file and keep working there. Then you are clean. The IRS may contact your employer or not–it may be too small of an issue–but it will take them a long time most likely. Or if you prefer, you can ask for your W-2 or a 1099 for 2014 form at the end of January, that is when the employer has to provide it by law.</p>
<p>For what it’s worth your income probably won’t affect your FA too much if it’s not substantial. Student income and assets are assessed at a higher rate but your income for this year probably won’t add too much to EFC.</p>