What Happens When You Don’t File a W-2?

A W-2 form, the Wage and Tax Statement, is a fundamental document in the United States tax system. Employers generate this form to report an employee’s annual wages, salary, compensation, and federal, state, and other taxes withheld. The W-2 provides this financial information to both the employee and the Social Security Administration (SSA).

The W-2 information is important for several reasons. Employees rely on it to prepare and file their income tax returns, reporting earnings and withheld taxes to the Internal Revenue Service (IRS). For the SSA, W-2 data calculates and tracks an individual’s Social Security and Medicare benefits, which are based on lifetime earnings.

Employer Filing Requirements for W-2s

Employers have specific obligations regarding W-2 forms. Each year, employers must file Copy A of Form W-2 for every employee with the Social Security Administration (SSA), usually with a transmittal Form W-3, by January 31st. This deadline applies to both paper and electronic filings, though electronic filing is often required for employers submitting many forms. The SSA processes this information and transmits the federal tax data to the IRS.

Employers are also required to furnish copies of the W-2 form to their employees. These copies, specifically Copies B, C, and 2, must be provided to employees on or before January 31st of the year following the calendar year in which the wages were paid. This ensures employees have time to prepare their personal income tax returns before the April 15th tax deadline. Employers can provide these forms through mail or, with employee consent, electronically.

Failing to meet these employer obligations can result in penalties from the IRS. Penalties are imposed for late filing of W-2s with the SSA, furnishing incorrect information on the forms, or failing to provide W-2s to employees on time. The penalty depends on how late the forms are submitted or corrected, with fines increasing the longer the non-compliance persists. For instance, penalties for late or incorrect W-2s can range from $60 per form if corrected within 30 days of the due date, escalating to $310 or more per form if filed after August 1st or not at all.

The IRS also imposes higher penalties for intentional disregard of filing requirements, which can be as much as $630 to $680 per W-2, with no maximum limit. These penalties are applied per form, meaning a business with many employees can face cumulative fines for non-compliance. Employers are encouraged to ensure accuracy in employee names and Social Security numbers, as mismatches can also lead to penalties.

Employee Tax Filing with W-2 Information

Employees use the W-2 form as the document to report their income and withheld taxes when filing their federal income tax returns, using Form 1040. The W-2 details total wages, federal income tax withheld, Social Security tax withheld, and Medicare tax withheld. This information is used for calculating the final tax liability or determining any refund due. It ensures the employee’s reported income aligns with what the employer reported to the government.

Even if an employee does not receive a W-2 from their employer, they are still obligated to report their income and file a tax return if their income exceeds the annual filing threshold. This can happen if an employer fails to send the W-2 or if there are issues with the employee’s address. Employees must seek to obtain their W-2 or use alternative methods to estimate their income and withholding. Neglecting to file a tax return, even without a W-2, can lead to penalties and interest.

Employees who fail to file their tax returns on time or fail to pay taxes owed may face penalties. The failure-to-file penalty is 5% of the unpaid taxes for each month or part of a month that a return is late, capped at 25% of the unpaid taxes. The failure-to-pay penalty is 0.5% of the unpaid taxes for each month or part of a month the taxes remain unpaid, also capped at 25%. These penalties can accumulate quickly, and both can be applied in the same month.

Interest is also charged on underpayments from the tax due date until the date the tax is paid in full. The interest rate is the federal short-term rate plus three percentage points, and it can fluctuate quarterly. These charges apply regardless of whether the employer filed the W-2 with the SSA, as the responsibility for filing an accurate personal tax return rests with the individual taxpayer.

IRS Responses to Unreported Income

The IRS employs systems to ensure compliance with tax laws, primarily through its information matching program. This program automatically compares the income and withholding information reported by employers and other payers (such as on W-2s and 1099s) with the income taxpayers report on their individual tax returns. When discrepancies are identified, the IRS system flags these differences, indicating potential underreported income or errors in filing.

Upon detecting a mismatch, the IRS initiates contact with the taxpayer by sending a notice. A common notice for underreported income is the CP2000, which is an Underreporter Inquiry. This notice is not a bill but a proposal of changes to the taxpayer’s return based on information the IRS has received from third parties. It outlines proposed adjustments to income, tax, and potentially penalties and interest, giving the taxpayer an opportunity to respond. Another notice, the CP05, indicates the IRS needs more time to verify income, withholding, or credits, and may hold any refund during its review.

In cases where a taxpayer fails to file a return, even if a W-2 was submitted by the employer to the SSA, the IRS may prepare a Substitute for Return (SFR). This is an assessment of tax based on income information the IRS has on file, such as W-2s and 1099s. The SFR calculates the tax liability using only the standard deduction and no other deductions or credits the taxpayer might be entitled to, potentially resulting in a higher tax burden than if the taxpayer had filed their own return.

If discrepancies remain unresolved or tax debts are not addressed, the IRS can escalate its actions to collection measures. These measures include placing a federal tax lien, which is a legal claim against a taxpayer’s property, including real estate and financial assets. The IRS can also issue levies, which are legal seizures of property to satisfy a tax debt. This can include bank levies, wage garnishments, or the seizure of other assets. These collection actions are a last resort after other attempts to resolve the tax liability have failed.

Correcting W-2 Related Discrepancies

If an employee has not received their W-2 form by the January 31st deadline, the first step involves contacting the employer’s payroll or human resources department. The employer can confirm if the W-2 was sent, verify the mailing address, or provide a reissued copy. If the employer is unresponsive or unable to provide the W-2 by mid-February, the employee can then contact the IRS for assistance. The IRS can reach out to the employer on the employee’s behalf.

Should the W-2 still not be received by the tax filing deadline, an employee can use Form 4852, Substitute for Form W-2, Wage and Tax Statement. This form allows taxpayers to estimate their wages and withheld taxes based on information from pay stubs or other records. Filing with Form 4852 enables compliance with the tax deadline, though it may lead to delays in processing any refund while the IRS verifies the information. If the actual W-2 is later received and differs from the estimates, an amended return may be necessary.

When a taxpayer receives an IRS notice, such as a CP2000, it requires a timely and informed response. The notice should be carefully reviewed to understand the proposed changes and the deadline for response, which is 30 or 60 days. If the taxpayer agrees with the IRS’s findings, they can sign and return the response form with any payment due. If there is disagreement, or only partial agreement, the taxpayer must provide a detailed explanation and supporting documentation, such as pay stubs or other income records, to substantiate their position. A CP2000 notice is not a demand for immediate payment, and responding accurately can help avoid further penalties.

For taxpayers who need to file a tax return late, the best approach is to prepare and submit the return as soon as possible. Prompt filing minimizes the accumulation of failure-to-file and failure-to-pay penalties, and also stops the accrual of interest on unpaid balances. Taxpayers should calculate any taxes owed, including penalties and interest, and explore payment options, which may include installment agreements if the full amount cannot be paid immediately.

In situations where a tax return was filed with errors, such as omitted W-2 income or incorrect withholding amounts, an amended return may be necessary. Form 1040-X, Amended U.S. Individual Income Tax Return, is used for this purpose. An amended return should be filed if there are material changes to income, deductions, or credits. Form 1040-X must be filed within three years from the date the original return was filed or within two years from the date the tax was paid, whichever is later. The amended return should include all corrected information and an explanation for the changes.