What Happens If You Don’t File All Your W-2s?

Form W-2, the Wage and Tax Statement, is the official record of your annual earnings and the taxes withheld by an employer. Many people work for multiple employers in a single tax year, resulting in several W-2 forms. Forgetting to include income from a W-2 on a tax return may seem like a simple oversight, but it sets in motion a specific series of events with the Internal Revenue Service (IRS).

The IRS Information Matching System

The discovery of an omitted W-2 by the IRS is a nearly certain event. Every employer is legally required to file a copy of each W-2 with the Social Security Administration (SSA), which then forwards this data to the IRS. The IRS uses an automated program, the Information Returns Processing (IRP) system, to compare income information from employers against the amounts taxpayers report on their returns. When the system detects that income reported by an employer does not appear on the employee’s tax return, it flags the account for review.

Potential Penalties and Interest Charges

If the unreported income results in an underpayment of tax, the IRS will assess penalties and interest. A primary penalty is the accuracy-related penalty for a substantial understatement of tax, which is generally 20% of the underpaid tax. A failure-to-pay penalty may also apply, accruing at a rate of 0.5% per month on the outstanding tax liability, capped at 25% of the unpaid taxes. Interest is also charged on the entire amount of the underpaid tax from the original due date of the return until the tax is paid in full. For example, if an omitted W-2 resulted in a $1,000 tax understatement, a 20% accuracy-related penalty would add $200, and interest and failure-to-pay penalties would accumulate on top of that from the tax deadline.

Receiving an IRS Notice for Unreported Income

After the IRS matching system identifies a discrepancy, the agency’s next step is to issue a notice, most commonly the CP2000. A CP2000 is not a formal audit or a bill; it is a proposed adjustment to your tax return based on information the IRS received that you did not report. The notice will itemize the unreported income and show the IRS’s calculation of the proposed additional tax owed. It also details the penalties and any interest that has accrued. A deadline for response is prominently displayed, and you must respond by this date, whether you agree or disagree, to avoid further automated enforcement.

How to Correct a Return with a Missing W-2

The proper course of action depends on whether you have already submitted your tax return. If you realize a W-2 is missing before you file, the first step is to contact the employer’s human resources or payroll department to request a copy. If you cannot obtain it in a timely manner, you can use Form 4852, Substitute for Form W-2, Wage and Tax Statement. To complete this form, you will need your final pay stub from that employer to accurately report your total wages and other payroll deductions.

If you have already filed your return and later discover the omission, you should proactively correct the error by filing an amended return. This is done using Form 1040-X, Amended U.S. Individual Income Tax Return. This form has three columns: one for the figures from your original return, one for the net change, and a final column for the corrected amounts. You will report the additional income and tax withholding from the newly found W-2 and recalculate your tax liability. Form 1040-X for recent tax years can be filed electronically, or you can mail a paper version with a copy of the W-2 attached.