Executive summary:
You can only get in trouble is you don't declare the money as income.
Detailed explanation:
Does your boss own the company?
I've seen this done many times. An insurance agent, who runs the company's office, may pay someone a bonus or extra money if the actual employer (the insurance company) insists that the pay is sufficient. In this case, the managing agent isn't the employer so he or she doesn't have to withhold taxes or issue a W-2. If the amount is $600 or more, he or she must issue a 1099. You, the recipient, must declare the income even if you get only $25. If the amount you receive is more than $400, you will likely have to pay self-employment tax as well. This scenario could also apply to a lawyer paying his assistant a bonus, as long as the lawyer doesn't own part of the firm. many law firms have two levels of partners. Some only receive a set amount of money for the year (income-only partner) and the others actually own a portion of the firm (equity partner).
If your boss is doing this every pay period, he or she is stretching the envelope.
What I described does not apply is your boss is an owner of the company. In that case, the money must go through payroll and have taxes withheld.
I hope this helps.
Gary
Yes, you can get in trouble if you don't report the income because you are required to report all income regardless of whether or not someone else reports it for you.
I would assume that your boss is not reporting the income, not withholding FICA taxes, and not paying the appropriate unemployment insurance rates, so your boss is the one who's really in trouble here.
Do yourself, and your boss a favor and tell him you just don't want to play these games. Its tax evasion plain and simple and you want no part in it.
It seems to me that your boss wasn't able to get you the raise through the company's normal procedures but is afraid you will quit (or get mad at your boss) if you don't get a raise. I assume there isn't any ulterior motive on your boss's part, like a romantic crush or something.
Since your boss isn't withholding tax on the money, you are in kind of a tricky situation. If you declare it as income you will have to pay taxes on it, if you don't declare it you could get in trouble with the IRS (not very likely though).
If it were me and the amount were less than $500 over the course of a year, I would take the money and NOT declare it as income.
You cannot get in trouble with IRS - your boss can if he's trying to hide his activities. Why a personal check - perhaps your services to him were of a more personal nature? - Does he do this with other employees? If this happens again ask why he is doing this - doesn't he want his payroll or bookkeeper to know? Or will his other employees get mad, cause you got a raise and they didn't. This behavior is bizarre.
your employer is responsible for withholding and reporting properly anything he pays you
paying you in cash he apparently did not withhold any taxes and my guess is he isn't reporting it to you on a W-2
it is responsibility and his liability for not reporting correctly
No. However, when you file, you must report everything that he paid you, including the personal check. If you do not, then you can get in trouble for not reporting it.
You are required to report it as income on your tax return. Assuming you do, you won't get in trouble.
He, though, is evading employer taxes by doing it that way, and yes he can get in trouble for it.
Be practicle, see a CPA. It may not be as bad as you fear.