U.S. Individual taxpayers: don’t fall for new tax season scams that involve bogus w-2 claims.
The Internal Revenue Service (IRS) would like you to beware of new w-2 related scams. Scammers now target the w-2 that your employer provided to help you prepare your tax return. The objective here is to encourage you to trick the IRS into giving a big refund.
THE DIFFERENT TYPES OF SCAMS
Form w-2, Wage and Tax Statement scheme
The w-2 scheme is circulating on social media. Fraudsters will urge you to:
- Use tax preparation software program to create a Form w-2 with inflated income and tax withholding amount, a fictitious name of a company that supposedly employees you and issued the w-2; and
- Use the fake w-2 to prepare a U.S. individual income tax return to get up to several hundreds of thousands of U.S. dollars of refunds from tax authorities.
You should know that the IRS and the representatives of the tax software industry, tax preparation firms, payroll and tax financial product processors and state tax administrators are monitoring the situation.
The Federal tax agency has also been working with payroll companies, large employers and the Social Security Administration (SSA) to verify w-2 information.
Note: The Form w-2 reflects the gross salary and wages that was paid to you during the calendar year as well as the taxable amount, the amount of withholding, the payroll taxes. It also reflects your personal and confidential information. A copy of the w-2 is sent to the U.S. Social Security Administration (SSA) on or before February 28.
Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals.
Scammers will encourage you to use your salary to claim the Credits for Sick Leave and Family Leave for Certain Self-Employed individuals.
These credits are not available for 2022 tax returns filed in 2023. They were available for 2020 and 2021 for eligible self-employed individuals who were unable to work due to certain COVID-19 related circumstances between January 1, 2021, and September 30, 2021. They would use Form 7202 to figure their refundable qualified sick and family leave equivalent credits.
Schedule H (Form 1040), Household Employment Taxes
Fraudsters will urge you to:
- Report fictional employees that you employed in your household; and
- Use Schedule H (Form 1040), Household Employment Taxes to try getting a refund based on false sick and family wages that you never paid.
Note: Schedule H (Form 1040) is designed to report household employment taxes in either of the following situations:
- You hired someone to do household work and the wages that you paid him or her are subject to Social Security, Medicare or FUTA taxes, or
- You hired someone to do household work and you withheld federal income tax from the wages that you paid him or her.
Example: You hire someone to do work in or around your home. He or she follows your instructions about the household and uses the household equipment and supplies that you provided. You paid cash wages of $2,400 or more in 2022. You need to withhold and pay social security and Medicare taxes.
THE RISKS INVOLVED IN THESE SCAMS
Penalties
The IRS will penalize you if you try anyone of these schemes. The penalties may include:
- Frivolous return penalty of $5,000
- Accuracy-related penalty for not claiming all your income or when you claim deductions or credits for which you don’t qualify.
- Erroneous claim for refund or credit penalty for submitting a claim for refund or credit of income tax for an excessive amount without any obvious reasons.
Criminal prosecution
You run the risk of criminal prosecution because it is a crime to knowingly file a false tax return.
CORRECTIVE MEASURES
If you have participated in one or several of these scams, the IRS recommends:
- You consult with a trustworthy tax professional
- Amend the tax return that you filed.
As of March 10, 2023, the IRS received 63.4 million tax returns, down from 63.5 million during the 2022 filing period ending on March 11, 2022. They processed 99.60% of those returns and issued $146 Billion of refunds in total. About 96% of the amount was refunded by direct deposit. However, during that period, the average refund amount is down by 10% at $3,074.