The IRS requires all employers to include on year-end W-2s -- or 1099s for self-employed contractors -- the full amount earned during that calendar year. If your employer does not, you have several options. The IRS recommends saving your check stubs throughout the year and comparing them to the amount your employer reports on your W-2.
According to the U.S. Department of Labor, employers must record the number of hours an employee works, the hourly rate or salary an employee earns, how much an employee earns each week or each month, any overtime an employee earns and how much an employee receives during a pay period. Each quarter, the IRS requires employers to report employee earnings and amount withheld for taxes. The amount reported on year-end tax forms should match the sum of the amounts an employer reported each quarter.
An employer may report your wages on a W-2, the form for an employee, or on a 1099, the form for a self-employed contractor who provided services that year. These tax forms should include all income you received, including tips, and any additional taxable income you received, such as bonuses. The IRS does not require employers to include in the amount any contributions made to a retirement account.
If your employer does not report all of the wages you earned that calendar year, you have several options. First, notify your employer. The mismatch may be a clerical error that your employer can easily fix. If your employer does not issue you a corrected W-2, you can report them to the IRS, which has a hotline you can call and a form you can fill out. The IRS can also help you if your employer does not give you a W-2. You may also want to get in touch with the Department of Revenue in the state where you live, if you live somewhere that has an income tax. How much you must pay in income tax is based on how much you earned that calendar year. An incorrect W-2 will affect this as well. The IRS considers incorrect information on a W-2 to be tax fraud.
Penalties For Tax Fraud
Tax fraud is knowingly and willingly attempting to hide information from the IRS related to how much you owe in taxes. The IRS will investigate allegations of employment tax fraud it receives. If the IRS finds that the employer has knowingly committed tax fraud, it can find the employer and/or impose a prison sentence, such as it did for a New Jersey business owner in 2012 for failing to file quarterly tax returns or withhold taxes from more than $1 million in cash wages.
If your employer does not give you a W-2, or fails to accurately report your income on it, you must still report your income. The IRS makes available on its website Form 4852, which is a substitute for a W-2. You indicate on the form why you’re filing it instead of a W-2. You also include on the form the information an employer typically includes on a W-2, such as wages, tips, other compensations and the amount of taxes, if any, your employer withheld.
- Ask the Money Coach: A Company I Worked for Failed to Report My Wages -- What Do I Do?
- IRS: Wages and Salaries
- US Department of Labor: Wages
- IRS: General Instructions for Forms W-2 and W-3 -- Penalties
- IRS: Employer’s Quarterly Federal Tax Return and Form 944
- IRS: How Do You Report Suspected Tax Fraud Activity?
- IRS: Examples of Employment Tax Fraud Investigations -- Fiscal Year 2012
- IRS: Form 4852
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