What Happens If You Only File One W2?
Understand the implications of incomplete income reporting on your tax return and how to address discrepancies with the IRS.
Taxpayers must accurately report all income sources to the Internal Revenue Service (IRS) when filing a tax return. Tax laws require including every amount earned throughout the year to ensure correct tax liability.
The Role of W-2 Forms
A W-2 form, or Wage and Tax Statement, is a document employers are required to issue to each employee and to the Social Security Administration (SSA). This form details an employee’s annual wages, salary, and other compensation, along with the amount of federal, state, and local taxes withheld from their paychecks. The information provided on a W-2 is crucial for both the employee and the IRS.
Every W-2 form received by a taxpayer must be included when preparing a tax return. Including all W-2s ensures that the full scope of earnings is reported and that appropriate credit is given for all taxes withheld. This complete picture allows for an accurate calculation of any additional tax owed or refund due.
Consequences of Incomplete Income Reporting
Failing to report all W-2 income can lead to financial consequences from the IRS. Omitting a W-2 results in an understatement of total income and an underpayment of taxes owed. The IRS charges both penalties and interest on these underpayments.
One penalty is the Failure to Pay Penalty, which is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, capped at 25% of the unpaid taxes. If the IRS issues a notice of intent to levy, this rate can increase to 1% per month. An Accuracy-Related Penalty may also apply, which is 20% of the underpayment if it results from negligence or a substantial understatement of income. 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.
Interest also accrues on any unpaid tax balance from the original due date of the return until the payment date. The interest rate on underpayments is generally the federal short-term rate plus three percentage points, adjusted quarterly. This means the total amount owed can grow significantly over time, as interest is charged on both the unpaid tax and any accumulated penalties.
IRS Actions and Communications
The IRS employs a system to identify discrepancies in reported income. The Automated Underreporter (AUR) program cross-references income and payment information reported by third parties, such as employers, with the income reported on individual tax returns. Employers are required to send copies of W-2 forms directly to the Social Security Administration, which then shares this data with the IRS.
If a mismatch is identified, the IRS typically sends a notice to the taxpayer, such as a CP2000 notice. This notice indicates a proposed adjustment to the taxpayer’s income, payments, or credits based on the information the IRS has on file. The CP2000 notice is a proposal for changes, explaining the discrepancy and the potential impact on the tax liability. Taxpayers are usually given a specific timeframe to respond to these notices, either agreeing with the proposed changes or providing documentation to dispute them.
Significant or repeated discrepancies could elevate the risk of an IRS audit. If taxes remain unpaid after notices and potential audits, the IRS has various collection processes. These can include issuing liens on property or levying bank accounts or wages.
Correcting an Already Filed Return
If a W-2 form was inadvertently omitted from a tax return, it is necessary to file an amended return to correct the error. This is done using Form 1040-X, Amended U.S. Individual Income Tax Return. The purpose of Form 1040-X is to adjust previously reported income, deductions, credits, or payments.
To complete Form 1040-X, you will need the information from your original tax return and the omitted W-2 form. The form requires you to show the original amounts reported, the net change, and the correct amounts for each line item affected by the additional income. Once completed, the Form 1040-X should be mailed to the IRS.
It is advisable to submit any additional tax due along with the amended return to stop the accrual of further interest and penalties. The processing time for Form 1040-X can vary, typically taking between 8 to 16 weeks. You can check the status of your amended return online using the IRS’s “Where’s My Amended Return?” tool, usually three weeks after submission.