What Happens If You Make a Mistake on Your Taxes?

It is common for taxpayers to discover errors on their tax returns after filing. Fortunately, the Internal Revenue Service (IRS) provides mechanisms to address these inaccuracies. This guide outlines the types of mistakes, how the IRS identifies them, and the procedures for correction, offering insights into rectifying errors and potential financial implications.

Types of Tax Return Errors

Tax return mistakes encompass a range of inaccuracies, from simple oversights to more complex reporting issues. Mathematical errors are frequent, involving incorrect addition, subtraction, or other calculations. These can occur when preparing a return manually, though tax software often mitigates such issues.

Another common category involves missing or incorrect information. This might include overlooking a Form 1099 for income received, misreporting Social Security numbers for taxpayers or dependents, or providing an outdated address. Ensuring names and Social Security numbers match precisely as they appear on official documents is a recurring point of error. Errors can also arise from incorrectly claiming deductions or credits, or choosing an incorrect filing status, like Head of Household instead of Single. Typographical errors, such as transposing numbers during data entry, are also common.

IRS Detection and Response

The IRS identifies discrepancies on filed tax returns through automated matching programs. These programs compare information reported by third parties, such as employers and financial institutions, with what taxpayers report. For instance, data from Forms W-2 (wages) and 1099 (interest, dividends, non-employee compensation) is cross-referenced with the taxpayer’s return. This process helps the IRS catch inconsistencies like unreported income or mismatched figures.

The IRS also automatically checks for mathematical errors on returns. If a calculation mistake is detected, the IRS can often correct it directly. When an error is identified, the IRS communicates with the taxpayer through various notices. Common notices include the CP2000, which proposes changes based on information mismatches, or the CP21B, which notifies taxpayers of an overpayment and potential refund. These notices explain the issue and often propose an adjustment to the tax liability. In more complex situations, the IRS may initiate an audit. Audits can range from correspondence audits, conducted by mail, to office audits, requiring an in-person meeting, or field audits, where an IRS agent visits the taxpayer’s home or business.

Correcting Your Tax Return

If a taxpayer discovers an error on a previously filed tax return, correction is advisable. For significant changes to income, deductions, credits, or filing status, amending the return is necessary. The primary form used for this purpose by individuals is Form 1040-X. This form allows taxpayers to correct a previously filed Form 1040, 1040-SR, or 1040-NR.

To complete Form 1040-X, taxpayers need their original tax return for the year being amended, any new documentation, and a clear explanation for the corrections. The form has columns to show the original figures, the net change, and the corrected amounts for income, deductions, credits, and payments. It is crucial to accurately reflect both the original and the revised figures.

After completing the form, it should be signed and dated. The amended return, along with any supporting documentation, is submitted by mail to the appropriate IRS address, found in the Form 1040-X instructions. While some tax software supports e-filing Form 1040-X for recent tax years, paper filing is often required for older returns. The IRS advises waiting until any expected refund from the original return has been received before submitting an amendment. Processing times for amended returns can take up to 16 weeks.

Potential Penalties and Interest

Tax mistakes can lead to financial consequences, including penalties and interest charges. A common penalty is the Failure to Pay Penalty, which applies if the tax due is not paid by the original deadline. This penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, up to a maximum of 25%.

Another consequence is the Accuracy-Related Penalty, assessed at 20% of the underpayment if it results from negligence or disregard of rules and regulations, or a substantial understatement of income tax. For individuals, a substantial understatement occurs if the underpayment exceeds 10% of the tax required to be shown on the return or $5,000, whichever is greater. If the original return was filed late, a Failure to File Penalty may also apply, which is 5% of the unpaid taxes for each month or part of a month the return is late, up to a maximum of 25%.

Interest is also charged on any unpaid tax from the original due date until the payment date, regardless of whether a penalty is assessed. The interest rate for underpayments is determined quarterly and is the federal short-term rate plus three percentage points, compounded daily. For the first half of 2025, the interest rate for individual underpayments was 7%. The IRS may provide penalty relief under certain circumstances, such as reasonable cause, which means the taxpayer exercised ordinary care but was unable to comply due to events beyond their control.