Will the IRS Catch a Missing W-2 on Your Tax Return?

Filing a tax return without including all of your income can be a costly oversight, as the Internal Revenue Service (IRS) is almost certain to notice a missing Form W-2. The agency uses an automated system to catch discrepancies between the income taxpayers report and the information it receives from employers. Because of this system, it is not a matter of if the IRS will catch the omission, but when.

The IRS Income Verification Process

The IRS’s ability to detect unreported wage income stems from employer reporting requirements. For every W-2 an employer provides to an employee, they must also file a copy with the Social Security Administration (SSA). The SSA records the earnings for Social Security benefit calculations and then forwards the financial data to the IRS, creating an independent, third-party record of your earnings for the year.

This data feeds into the Automated Underreporter (AUR) system. The AUR systematically cross-references the income and withholding figures from employers against the amounts on individuals’ Form 1040 tax returns. When the system finds a mismatch, such as W-2 income that appears in the IRS database but not on your tax return, it automatically flags the return for review.

The IRS Notice and Assessment Process

Once the AUR system flags a discrepancy, the IRS sends a CP2000 notice. This notice is not a formal audit or a tax bill, but a letter proposing changes to your tax return based on information the IRS has received from third parties but which you did not report.

The notice identifies the source of the unreported income and provides a breakdown of the proposed adjustments, including the additional income, recalculated tax, and any penalties and interest. The most common penalty is the accuracy-related penalty, which can be 20% of the underpayment of tax.

The notice includes a response form to communicate your agreement or disagreement. You must respond directly to the CP2000 notice; you should not file an amended tax return (Form 1040-X) to correct the discrepancy. If you do not reply to the notice, the agency will issue a Statutory Notice of Deficiency, which asserts the tax is legally due.

Required Actions for a Missing W-2

If the tax filing deadline is approaching and you have not received a W-2, you are still required to file on time. First, gather your final pay stub for the year from that employer, as this document contains the year-to-date figures needed to reconstruct your earnings and withholdings, including:

• Gross wages
• Federal and state income tax withheld
• Social Security and Medicare taxes withheld

You should first contact the employer to request a copy of the W-2, which they are required to provide by January 31st. If you have not received it by mid-February and the employer is unresponsive, you can call the IRS, and they will contact the employer on your behalf.

If the W-2 does not arrive in time, you must use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Use the data from your final pay stub to complete this form, estimating your annual wages and withholdings. Form 4852 must be attached to your completed Form 1040 and filed by the tax deadline to avoid late-filing penalties.

Correcting a Return After Filing

If you realize you forgot to include a W-2 before the IRS contacts you, file Form 1040-X, Amended U.S. Individual Income Tax Return. This allows you to report the additional income and pay the correct tax, which can help minimize penalties and interest. You must attach the missing W-2 to your Form 1040-X.