Most people who receive their income in cash are not covered by their employer’s contributions to Social Security and Medicare, which are funded through their income. First, we should understand what is deducted from your paycheck or every paycheck you receive from your employer. You may lose some of your Social Security and Medicare benefits if you receive your paycheck in cash.

Let's break it down together to understand the benefits of reporting your income: Five deductions are taken from your paycheck: Federal Income Tax, State Income Tax, Social Security, Medicare, and Voluntary Deductions. 

Federal Income Tax: It’s deducted from your gross income. Additionally, there are various factors that depend on your filing status, such as single, Married filing jointly, or Head of Household.

State Income Tax: It operates similarly to federal income tax, but it may vary depending on the state you reside in.

Social Security: Deducted from your income, a 6.2% deduction is made, and your employer contributes the same amount, resulting in a total of 12.4% paid towards the IRS.

Medicare: the taxpayer pays 1.45% and the employer also pays 1.45% for a total of 2.9% to the IRS.

Voluntary Deductions: Most taxpayers pay the Health Insurance Premium. 

So, for Example, if a taxpayer reports to the IRS half of his income, that means the taxpayer lost half of the Social Security and Medicare benefits. 

You receive a total income of a hundred thousand dollars, but you allow your employer to pay you $50,000 in paychecks and the other $50,000 in cash. That implies your employer didn’t contribute the 7.65% for the portion you didn’t report, and you’re receiving it in cash.

You have the autonomy to decide how you want to receive your benefits upon retirement.