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The Internal Revenue Service is cautioning taxpayers to beware of a new scam involving Form W-2. Fraudsters are urging people to use wage information on a tax return to claim false credits to score a big tax refund. The IRS and its Security Summit partners in the tax industry and state tax authorities are actively watching for this scheme and others. On top of that, the IRS has been working with payroll companies, large employers, and the Social Security Administration to verify W-2 information.


This scheme urges people to use tax software to fill out a W-2 manually and include this false income information. Scam artists suggest people simply invent significant income and withhold figures, as well as the employer providing the money. Scam artists then tell people to e-file the fraudulent tax return to get a substantial refund due to the large amount of withholding. The IRS is also seeing two variations of the scam; 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 the income they supposedly earned as an employee and not as a self-employed individual. The credits were available for self-employed individuals for 2020 and 2021 during the pandemic but not for 2022 tax returns.


A similar variation involves individuals employing fictional workers in their household and using Schedule H, Household Employment Taxes, to attempt to claim a refund based on bogus 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 the employer withheld federal income tax from those wages.


The IRS is reminding people who try this that they face a wide range of tax penalties, including a frivolous return penalty of $5,000. Scammers also risk criminal prosecution for filing a false tax return. The IRS recommends several options for anybody who has participated in one of these scams, such as amending a previous tax return or consulting with a trustworthy tax professional.


Talley's team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.


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