New IRS Scams involving Form W-2 WagesShare this post
IRS warns taxpayers of new filing season scams involving Form W-2 wages
On March 3, 2023, the Internal Revenue Service issued a consumer alert warning taxpayers of new scams that urge people to use wage information on a tax return to claim false credits in hopes of getting a big refund. The most common scheme, circulating on social media, encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement, and include false income information. In this W-2 scheme, scam artists suggest people make up large income and withholding figures as well as the employer it is coming from. Scam artists then instruct people to file the bogus tax return electronically in hopes of getting a substantial refund – sometimes as much as five figures – due to the large amount of withholding. The IRS warns that innocent taxpayers could be at risk of financial and criminal penalties as a result of this scam.
The IRS works with payroll companies and large employers – as well as the Social Security Administration – to verify W-2 information. The scheme has two main variations both involve misusing Form W-2 wage information in hopes of generating a larger refund. One variation involves people using Form 7202, Credits for Sick Leave and Family Leave for Certain SelfEmployed Individuals, to claim a credit based on income earned as an employee and not as a self-employed individual. These credits were available for self-employed individuals for 2020 and 2021 during the pandemic; they are not available for 2022 tax returns.
A similar variation involves people making up fictional employees employed in their household and using Schedule H (Form 1040), Household Employment Taxes, to try claiming a refund based on false sick and family wages they never paid.
The IRS reminds people who try this that they face a wide range of penalties. This may include a frivolous return penalty of $5,000. Filers also run the risk of criminal prosecution for filing a false tax return. For anyone who has participated in one of these schemes, there are several options that the IRS recommends. People can amend a previous tax return or consult with a trusted tax professional.