PROFIT FROM IT: New Scam Involving W-2 Forms

In this W-2 scheme, scammers suggest people make up large income and withholding figures as well as a fictitious employer from which it is coming. They then instruct people to file a 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 along with the Security Summit partners in the tax industry and the states, are actively watching for this scheme and others. In addition, the IRS works with payroll companies and large employers, plus the Social Security Administration. to verify W-2 information.

With National Consumer Protection Week having started this past Monday, the IRS and Summit partners warn people not to fall for these scams.

“We are seeing signs this scam is increasing, and we worry that innocent taxpayers could be at risk of being tempted into falling into a trap that puts them at risk of financial and criminal penalties,” said Acting IRS Commissioner Doug O’Donnell. “The IRS and Security Summit partners remind people there is no secret way to get free money or a big refund. People should not make up income and try to submit a fraudulent tax return in hopes of getting a huge refund.”

The IRS said that two variations of this scheme are also being seen; 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, but 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 form is designed to report household employment taxes if a taxpayer hired someone to do household work and those wages were subject to Social Security, Medicare or FUTA taxes, or if the employer withheld federal income tax from those wages.

The IRS reminds those who might 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 (I suggest you do that immediately) or consult with a trusted tax professional.

Lane Keeter, CPA is the Senior Partner of EGP, PLLC, CPAs & Consultants (www.egpcpas.com), a full-service financial firm with offices around Arkansas, Managing Partner of EGP’s Heber Springs office, and winner of The Sun-Times Reader’s Choice Award for Best Accountant.

Lane Keeter, CPA is the Senior Partner of EGP, PLLC, CPAs & Consultants (www. egpcpas.com), a full-service financial firm with offices around Arkansas, Managing Partner of EGP’s Heber Springs office, and winner of The Sun-Times Reader’s Choice Award for Best Accountant.