Internet start up with tight budget: hire and pay social security vs. pay under the table?

Question

we recently started up an internet company and our budget is pretty tight.

We are considering "hiring" one or two part-time IT students to help us programming, for a limited period of time.

What is economically better for us: hire them and pay social security, etc. or just pay them under the table? if we do it the legal way, can we deduct this later, or can it help is in any way...? any actual risks (in a realistic way)?

just let us say the student who was to join us wouldn't mind working like this for a limited period of time.

I appreciate your answers!

J

Answer 1

Are you asking if it would proper to cheat?  No.  What you should do depends on the relationship between you and the workers.  If you hire someone to do some programming for you, tell them how you want the finished product to look, agree on a flat price and they do it at home on using their computer and whatever time needed whenever they feel like working, you will be OK provided you issue a 1099 when the job is done.  If they come in to yoru place of business, use your equipment and are paid by the hour, plan on withholding taxes.

Answer 2

If you pay someone under the table and they either report it or get caught by the IRS, and that CAN happen, you are busted right along with them and could have to pay the back ss match plus penalties.