Here is a scenario that you might encounter in the real world. While it is illegal to not report income, chances are that you will come across someone thinking it is a good idea or they can get away with it. We are not condoning this in any way. But usually the person receiving the income is not opposed to getting paid under the table because they think if they are on payroll they will have to pay FICA taxes and income taxes (which maybe true) and will end up with less money. Your post will make an argument to an individual that they would be better off being an employee with reported earned income (outside of staying out of trouble). Let's say that the individual you are addressing has two small children and is married filing jointly. Assume one spouse will stay home to take care of the kids so you only have one income to deal with. So use the tables for the earned income credit (you will need to look these up) and pick 3 levels of income and show how the earned income credit would compare to the FICA/income taxes our hypothetical couple would pay. At what level of income could you make a case that having reportable earned income will actually make the couple financially better off (credits available are greater than taxes to be paid)? Show your calculations and where you found the information.