What Happens If I Don’t File a W-2?

A Form W-2, officially known as the Wage and Tax Statement, is a tax document employers issue to each employee annually by January 31st. It details the wages paid and the federal, state, and local taxes withheld throughout the calendar year. This document summarizes an employee’s earnings and contributions to various taxes.

The information on a W-2 form is essential for employees when they prepare and file their individual income tax returns. It ensures correct income reporting and proper credit for taxes already paid through withholding. The Internal Revenue Service (IRS) also receives a copy of each W-2, using it to verify reported income and track tax obligations.

How the IRS Identifies Non-Filers

The IRS identifies individuals who have not filed required tax returns through an information matching system. This system compares data received from various sources against filed tax returns. Employers, banks, and other financial institutions submit income information directly to the IRS.

Employers send W-2 forms reporting wages and withheld taxes, while other payers submit various 1099 forms for different types of income, such as independent contractor payments or interest income. The IRS’s computer programs cross-reference these third-party reported income figures with the income declared on individual tax returns. If a tax return is not filed, or if there are significant discrepancies, the system flags the individual as a potential non-filer.

Consequences of Not Filing

Failing to file a tax return when required, especially when a W-2 indicates a filing obligation, can lead to several financial penalties and complications. These penalties can accumulate quickly, significantly increasing the amount owed.

The Failure to File penalty is 5% of the unpaid taxes for each month or part of a month that a return is late, with a maximum penalty of 25% of the unpaid tax. Even if a refund is due, there is no penalty for filing late, but the taxpayer will not receive their refund until the return is filed. If the return is more than 60 days late, a minimum penalty may apply, which is the lesser of a specific dollar amount or 100% of the tax required to be shown on the return.

A Failure to Pay penalty is 0.5% of the unpaid taxes for each month or part of a month that taxes remain unpaid, also capped at 25% of the unpaid tax. Both penalties can apply simultaneously, though the failure to file penalty may be reduced by the amount of the failure to pay penalty for any given month, so the combined monthly penalty does not exceed 5%. Interest also accrues on any unpaid taxes and penalties from the original due date of the return until the balance is paid in full. The IRS interest rate for underpayments is determined quarterly.

When a taxpayer fails to file, the IRS can create a “Substitute for Return” (SFR) on their behalf using the income information it has received from employers and other third parties. These SFRs often do not account for deductions, credits, or the most favorable filing status that the taxpayer might be entitled to, which can result in a higher calculated tax liability than if the taxpayer had filed their own return. If a refund is due, failing to file means the taxpayer will not receive it, and the ability to claim a refund is lost if the return is not filed within three years from the original due date or two years from the date the tax was paid.

Steps to Take When You Haven’t Filed

If you realize you have not filed your tax return, it is important to take action promptly to mitigate potential penalties and interest. Gather all necessary income documents for the unfiled year(s). If you cannot locate your W-2 form, contact your employer to request a duplicate. If your employer is unable to provide it, you can request a wage and income transcript directly from the IRS by submitting Form 4506-T. This transcript provides the income information reported to the IRS.

Once you have all your income documentation, prepare and file your tax return for the unfiled year(s) as soon as possible. You can use tax software, work with a tax professional, or use IRS forms directly. Paying any taxes owed immediately will stop the accrual of penalties and interest.

If you cannot pay the full amount of tax owed, the IRS offers various payment options to help manage the liability. These options include short-term payment plans, which allow up to 180 days to pay the full amount, or long-term installment agreements for monthly payments over an extended period. While interest and penalties continue to accrue under these plans.

Should you receive any notices from the IRS regarding unfiled returns or proposed assessments, respond promptly. These notices indicate that the IRS has identified a discrepancy or a missing return. Filing your return, even if late, or contacting the IRS to explain your situation, helps address the issue and prevent further enforcement actions.