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IRS Warns of Fraud Schemes Involving W-2s

S.J. Steinhardt
Published Date:
Mar 6, 2023

The IRS is warning taxpayers not to fall victim to new tax season scams that promise them a large refund.

Such scams urge taxpayers to use wage information on a tax return to claim false credits. One such scheme circulating on social media encourages taxpayers to use tax software "to manually fill out Form W-2, Wage and Tax Statement, and include false income information." They urge taxpayers to fabricate large income and withholding figures, and to falsely indicate the employer from which the income is purportedly coming. Then, the scammers instruct the filers to file the bogus tax return electronically, ideally to obtain a big refund due to the large amount of withholding.

There are two variations to this scheme, each of which involves the misuse of Form W-2. One involves 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 are not available for 2022; they were available for self-employed individuals for 2020 and 2021 during the pandemic.

The other is to have people make up fictional employees employed in their household, using  Schedule H (Form 1040), Household Employment Taxes, to try to claim a refund based on false sick and family wages they never paid.

The IRS and its Security Summit partners in the tax industry and the states are actively watching for this scheme and others. The tax agency is also working with payroll companies, large employers, and the Social Security Administration to verify W-2 information.

National Consumer Protection Week starts today, and the IRS and Summit partners warned 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."

Anyone attempting this type of fraud face a wide range of penalties, as well as possible criminal prosecution for filing a false tax return.

People who have participated in one of these schemes can amend a previous tax return or consult with a trusted tax professional, the IRS advised.

Click here to see more of the latest news from the NYSSCPA.