IRS warns of new tax scam that encourages taxpayers to falsify information

INDIANAPOLIS — The Internal Revenue Service issued a warning Friday about a new scam that encourages taxpayers to use wage information on a tax return to claim false credits in hopes of getting a big refund.

The scam, which is circulating on social media, suggest people should use tax software to manually fill out Form W-2, Wage and Tax Statement and include false income information.

In this W-2 scheme, scammers urge taxpayers to make up large income and withholding figures as well as the employer it is coming from.

“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,” the IRS said in a statement Friday.

The IRS is warning people not to fall for it. “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 says there are two versions of the scam. Both involve misusing W-2 wage information in the hopes of getting a larger refund:

• One variation of the scam 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. The IRS says these credits were available for self-employed individuals for 2020 and 2021 during the pandemic; but they are not available for 2022 tax returns.
• The second variation of the scam involves people making up fictional employees working in their household and using Schedule H, Household Employment Taxes , to claim a refund based on false sick and family wages they never paid. Taxpayers are supposed to use the form 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 issued a warning Friday to remind people they face a wide range of penalties including a $5,000 return penalty or criminal prosecution for filing a false tax return.