You're right to fear employers who want to avoid claiming employees so that they don't have to comply with, for example, safety laws. But shadow work also includes situations with "casual" business relationships, like a couple who hires a nanny to watch their kids 40 hours a week. Both parties may feel that complying with tax and labor laws is too much of a burden.
The employee, under current laws, does not get to skip out on taxes; they have to pay the self employment tax rate of 15%; We're talking about 40 hour weeks, that kind of regular pay doesn't go un noticed by revenue offices.
Yes, the employee must file and pay taxes, even if they've reported their employer to the IRS for mis-classification.
You may have been downvoted because you seem be ignoring the point gp post. By working under the table, the nanny or gardener or handyman can (often fraudulently) qualify for government healthcare and welfare programs as well as other low income assistance.
In my opinion those programs are of a greater benefit than the ones you listed.
Not only that, it doesn't specify the compensation.
Suppose the employer avoids paying Medicare tax and unemployment insurance, but gives some of this money to the employee, who also avoids paying Medicare tax. This is, of course, illegal, but it isn't inherently the case that the employee is getting the worse of it outside of the risk of being prosecuted for tax evasion.
Unemployment insurance in particular generally screws anyone who maintains stable employment because the net beneficiaries are the people who collect benefits every other year, not the people who pay premiums their whole lives and only collect benefits once if at all. The latter would come out ahead to receive even half the premiums as money they could save and collect interest on and then have in reserve in the event they become unemployed. (In general mandatory insurance of this kind is a net economic loss and a source of benefits fraud that only gets passed by alleging it gets paid for by employers rather than employees, but who pays for something on paper and who is affected by the economic effects of the cost are different things.)
