If I Cash My Paycheck, Will the IRS Find Out?

When it comes to dealing with the IRS, all taxpayers need to be careful. Unfortunately, there is a lot of misinformation out there, and if taxpayers rely on bad advice, they can find themselves facing an expensive tax audit—or even a criminal tax fraud investigation.

One topic that seems to be a source of confusion for many taxpayers is whether it is possible to avoid federal income tax liability by cashing (rather than depositing) a paycheck. If you cash your paycheck, will the IRS find out? Or does cashing your paycheck allow you to avoid paying taxes to the federal government?

5 Important Facts to Know About Cashing Your Paycheck

The short answer is “No.” Cashing your paycheck does not allow you to avoid federal income tax liability. If you are thinking about cashing your paychecks (or if you have cashed your paychecks in the past), here are five important facts to keep in mind:

1. Your Employer Will Almost Certainly Report Your Income to the IRS

Regardless of whether you report your income to the IRS, your employer almost certainly will. Companies must report their payroll expenses to the IRS in order to pay their federal employment taxes, and they must document their payroll expenses in order to deduct these expenses on their business income tax returns.   

2. Failure to Report Your Income Triggers Immediate Penalties and Interest

If you don’t report your income to the IRS by Tax Day, you will immediately begin incurring interest and penalties. This is true even if you don’t owe any taxes—as the IRS imposes penalties and interest for both “failure to pay” and “failure to file.”

3. The Risk of Being Audited is a Very Real Concern

Employees who don’t report their income are at high risk of facing an IRS audit. If the IRS conducts an audit and you have cashed your paychecks without reporting your income, the IRS can seek to collect the full amount you owe. If you don’t pay voluntarily, it can pursue various means of collection, including placing tax liens on your property.

4. Accusations of Intentionally Failing to Report Your Income Can Lead to Criminal Charges

If the IRS determines that you intentionally attempted to evade your income tax liability by cashing your paychecks, it can pursue criminal enforcement. Criminal tax evasion charges carry substantial fines and federal prison time.

5. You Have Options—If You Aren’t Already Facing an Audit Investigation

As long as you aren’t already facing an audit or investigation, you have options for addressing past filing failures. Depending on the circumstances, your best option may be to submit a voluntary disclosure. But, this option can be risky as well, and, to ensure that you are not increasing your risk of prosecution, you should discuss your situation with an experienced tax lawyer in New Jersey promptly.

Questions or Concerns? Request a Confidential Consultation with Tax Lawyer Kevin E. Thorn

Do you have questions or concerns about cashing your paycheck without reporting your income to the IRS? If so, we encourage you to contact us for a confidential consultation. Call 201-842-7696, email ket@thornlawgroup.com or send us a message online to request an appointment today.