A recent social media scam encourages victims to file fake tax returns using wage information in the hopes of receiving a sizable refund.

How the W-2 fraud operates

The plan encourages people to manually fill out form W2, Wage and Tax Statement, using tax software, and to enter fictitious information about their income. Scammers make false claims about people's income, withholdings, and employers.

Then con artists advise victims to electronically file the false tax return in the hopes of receiving a sizeable refund - often as high as five figures - as a result of the significant amount of withholding.

There are currently two further iterations of this plan. Both entail utilizing W2 wage information improperly in an effort to increase the refund:

One alternative involves people claiming a credit based on income received as an employee and not as a self-employed person by completing Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals.

During the epidemic, these credits were accessible to self-employed people for tax years 2020 and 2021; they are not accessible for tax years 2022.

Similar variations include people inventing fictitious household employees and attempting to obtain a refund using Schedule H (Form 1040), Household Employment Taxes, based on fictitious sick and family medical leave earnings they never paid.

If a taxpayer hired someone to do household duties and the wages were subject to Social Security, Medicare, or federal unemployment (FUTA) taxes, or if the employer withheld federal income tax from the wages, they must utilize the form to report household employment taxes.

The IRS checks W-2s and keeps an eye out for these schemes.

The IRS is actively on the lookout for this and other schemes, along with partners in the tax business from Security Summit and the states. In order to confirm W2 form data, the IRS also collaborates with payroll providers, big businesses, and the Social Security Administration.

People who attempt this scam risk a variety of sanctions, including a $5,000 frivolous return penalty. Additionally, they run the possibility of being charged with a crime for filing a fake tax return.

The IRS suggests a number of options for anyone who participated in one of these schemes. A prior tax return can be amended, or people can consult a reputable tax expert.