Tax Tip 2023-39: Attempting this W-2 scam can lead to penalties for taxpayers

Internal Revenue Service (IRS) sent this bulletin at 03/27/2023 10:37 AM EDT

IRS Tax Tips

March 27, 2023

Issue Number: Tax Tip 2023-39

Attempting this W-2 scam can lead to penalties for taxpayers

A new scam circulating on social media urges people to use wage information on a tax return to claim false credits in hopes of getting a big refund.

How the W-2 scam works
The scheme encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement, and include false income information. Scam artists suggest people make up large income, withholding figures and employer. 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.

There are two other variations of this scheme going around. 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 Self-Employed 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 medical leave wages they never paid. Taxpayers use the form to report household employment taxes if they hired someone to do household work and those wages were subject to Social Security, Medicare or federal unemployment (FUTA) taxes, or if the employer withheld federal income tax from those wages.

The IRS verifies W-2s and is watching for these scams
The IRS, together with Security Summit partners in the tax industry and the states, is actively watching for this scheme and others. In addition, the IRS works with payroll companies and large employers as well as the Social Security Administration to verify W-2 information.

People who try this scam face a wide range of penalties, including a frivolous return penalty of $5,000. They also run the risk of criminal prosecution for filing a false tax return.

For anyone who has taken part 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.

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Tax Tip 2023-39: Attempting this W-2 scam can lead to penalties for taxpayers

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Issue Number: Tax Tip 2023-39