What Happens if You Don’t Claim a W2?
Don't claim your W2? Learn why the IRS knows your income, the consequences of not reporting, and how to achieve tax compliance.
A Form W-2, the Wage and Tax Statement, is a document employers provide to their employees and the Internal Revenue Service (IRS) annually. This form reports total wages paid to an employee, along with federal, state, and other taxes withheld. The W-2 information is fundamental for individuals to accurately prepare and file their federal and state income tax returns. It provides a clear record of employment income and associated tax withholdings.
How the IRS Identifies Unreported Income
The IRS has systems to identify income taxpayers may not have reported. A primary mechanism involves third-party reporting, where employers send copies of W-2 forms and other income statements to the Social Security Administration (SSA), which then shares this information with the IRS.
The IRS employs data analysis through its Automated Underreporter (AUR) program. This program cross-references income reported by third parties with income individuals report on their tax returns. If a discrepancy exists, the AUR program flags the account for review.
When a mismatch is detected, the IRS typically sends a Notice CP2000 to the taxpayer. This notice outlines the discrepancy found between income reported by a third party and what the taxpayer declared. A CP2000 is not an audit but an inquiry proposing changes to the taxpayer’s return and potentially additional tax, penalties, and interest.
Consequences of Not Claiming a W2
Failing to report W2 income can lead to penalties and financial repercussions from the IRS. An underpayment penalty applies if insufficient tax was paid throughout the year. This can occur if unreported W2 income results in a significant amount owed at year-end. The underpayment penalty rate is set quarterly and applied to the underpaid amount.
Accuracy-related penalties may also be imposed if the underpayment results from negligence, a disregard of tax rules, or a substantial understatement of income tax. Negligence involves failing to comply with tax laws, such as not including income shown on an information return. A substantial understatement occurs if the understated tax liability exceeds 10% of the tax required or $5,000, whichever is greater. The accuracy-related penalty is 20% of the underpayment attributable to such issues.
Separate penalties apply for failure to file a tax return and failure to pay taxes owed. The failure-to-file penalty is 5% of the unpaid tax for each month or part of a month the return is late, capped at 25%. The failure-to-pay penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, also capped at 25%. If both penalties apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay penalty.
Interest accrues on any unpaid tax from the original due date until paid, with the rate determined quarterly, compounding daily. In cases of intentional tax evasion, criminal charges, including fines and imprisonment, are possible.
Steps to Correct an Unclaimed W2
If a taxpayer failed to report a W2 on a previous tax return, the primary method for correction is filing an amended tax return using Form 1040-X, Amended U.S. Individual Income Tax Return. This form allows individuals to correct errors on a filed and processed return. The process involves detailing original figures, corrected figures, and an explanation for changes.
Before completing Form 1040-X, gather all necessary documents, including the correct W2, the original tax return, and other relevant financial records. The amended return will reflect the updated tax liability. Any additional tax, penalties, and accrued interest should be paid with the submission to minimize further charges. Form 1040-X cannot be e-filed and must be mailed to the appropriate IRS address.
After submission, amended returns take several weeks to months to process. Taxpayers can track the status of their amended return online through the IRS “Where’s My Amended Return?” tool. Promptly correcting unreported income can help mitigate potential penalties and interest.
What to Do If You Don’t Receive Your W2
If you do not receive your W2 by the required deadline, January 31st, first contact your employer directly. Request a copy of the W2 and confirm the mailing address on file.
If your employer is unresponsive or unable to provide the W2, contact the IRS for assistance. The IRS can reach out to your employer to request the missing form. They may also provide you with a Form 4852, Substitute for Form W-2, which allows you to estimate your wages and withholdings based on pay stubs or other records.
Another option is to obtain a Wage and Income Transcript directly from the IRS. This transcript contains information reported to the IRS by employers and other payers. You can request this transcript online, by phone, or by mail. The wage and income transcript can be used to accurately prepare your tax return, even without the physical W2 form. If the tax deadline is approaching and you still cannot obtain your W2 or a transcript, you may need to estimate your income using your final pay stub and file Form 4852, then amend your return later if the actual W2 shows different figures.