Social media-promoted tax hacks can lead to both legal repercussions with the IRS and disappointment in not receiving the advertised substantial refund.The IRS is cautioning taxpayers against following advice that encourages the use of tax software to enter false income information on W2 forms. Some scammers recommend entering inflated income and withholding amounts to obtain substantial refunds.
If you have not filed your taxes yet, it is crucial to be aware of these potential scams. Additionally, it is essential to understand how long it may take to receive your tax refund and how to avoid being swindled by fraudulent tax preparers. Employers send W2 tax forms to their employees, which detail their yearly income, federal income tax withholding, retirement contributions, and other relevant information. Employees utilize this information to complete their Form 1040 individual income tax return, which determines whether they owe taxes to the IRS or are entitled to a refund. The refund amount may be greater if the withholding amount is larger.
Engaging in fraudulent “tax hacks” can result in significant consequences with the Internal Revenue Service (IRS)
Tax and security professionals have warned that falsifying information on a W2 form is a guaranteed method to attract IRS scrutiny, as the agency obtains copies of W2s from employers and cross-references them with the information provided on individual tax returns.The scheme has emerged during a year when tax refunds are roughly 10% lower than in the previous year, coupled with high inflation that has placed a financial burden on numerous households.
According to Amir Tarighat, CEO of cybersecurity firm Agency, many individuals on social media who claim to be tax experts and promote “tax hacks” are actually just seeking attention and followers. “They really aren’t even selling anything other than, ‘Follow me for more tricks,'” Tarighat noted. He added that these so-called tricks can result in violations of tax law, leading to IRS penalties and fines.
The IRS cautioned that taxpayers who utilize these tactics could be subject to several penalties, including a $5,000 penalty for filing a frivolous return, and even the possibility of criminal prosecution for submitting a false tax return. Keith Hall, CEO of the National Association for the Self-Employed and a CPA, explained that these scammers may be taking advantage of the fact that tax filers could beat the clock by submitting their returns before the IRS verifies matching data from an employer’s W2.
Keith Hall, CEO of the National Association for the Self-Employed and a certified public accountant, said that scammers may be hoping to exploit the limited time the IRS has to verify data from employers’ W2s before processing tax returns. However, Hall cautioned against such practices, noting that the IRS will eventually catch those who file false information. “If someone suggests that you can obtain a large tax refund by falsifying W2 information, it’s best to walk away quickly,” Hall advised.
The scheme involves creating fake employees and claiming a non-existent tax credit
The IRS has reported a rise in a few other versions of the W2 tax scam. Among them is a scheme where individuals create fake household employees and file a Schedule H for Household Employment Taxes. This allows them to claim refunds for fake sick and family wages that were never actually paid.
The IRS has identified another variation of the W2 tax scam, which involves using Form 7202 for Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals. However, this tax credit was only available for self-employed workers in 2020 and 2021 during the pandemic, and is no longer available for tax year 2022, according to the IRS. Acting IRS Commissioner Doug O’Donnell emphasized that there is no legitimate way to get free money or a big refund, and warned against making up income and attempting to submit a fraudulent tax return.