You may already be aware that the IRS matches your W-2 to your tax return at some point, but did you know that this matching typically didn’t happen until months after your tax return was filed and after you already received your refund? In 2013, the IRS processed roughly 148 million tax returns and more than 2.1 billion supporting statements such as W-2s and 1099s. Of these 148 million returns, the information on more than 27 million of them did not match what was reported on their supporting statements, but only 4.1 million taxpayers were notified of these discrepancies by the IRS due to understaffing. This means that chances are good that these filers would continue to make the same mistakes again and again. However, beginning with the 2017 tax year, the way the IRS matches your W-2 to your tax return has changed.
The IRS does match refunds with income statements like W-2s. This upfront matching is intended to reduce instances of refund fraud.
What Is Upfront Matching?
Previously, the IRS had no real way to match refunds with income information statements such as W-2s and 1099s. This led to refund fraud because refunds were issued before the IRS was able to get around to handling the statements if they don't match. Not all discrepancies are due to intentional fraud – sometimes taxpayers are genuinely unclear about the number of deductions they should claim or they’ve incorrectly chosen the wrong filing status. But if the IRS does not let them know there was an issue, the likelihood of repeating these errors is high.
To correct this situation, the IRS has begun to implement a method of matching income statements before issuing any refunds: Your W-2 will be matched against your tax return to check for discrepancies before the IRS releases your refund. If something does not match up, you will be notified prior to receiving your refund so you can address the issue.
What Happens if My W-2 Doesn’t Match My Return?
If Form W-2, Wage and Tax Statement, does not match your tax return, the IRS will notify you much sooner of any mismatched information. Usually a simple oversight, such as claiming too many allowances on your W-4, Employee's Withholding Allowance Certificate, or incorrectly selecting your filing status, is often to blame. While the IRS recognizes that taxpayers make mistakes, you can still face possible penalties for filing your return incorrectly, so it is best to file an amended return as soon as you catch the mistake. Use Form 1040X, Amended U.S. Individual Income Tax Return, to fix common errors like using the wrong filing status; incorrect filing of dependents; and erroneous deductions or credits to your income. Do not use Form 1040X to correct math errors on your return because the IRS makes these corrections based on what was reported on your W-2 or 1099 and notifies you of any discrepancies.
How Quick Auditing Affects Your Tax Credit Refunds
These auditing rules require employers to submit W-2s earlier so there is enough time to match the information reported on the W-2 to an employee's tax return. If you claimed the Earned Income Tax Credit, as well as the Additional Child Tax Credit, then you will no longer receive these refunds until the IRS has checked that everything matches, this lessens the chances of a tax audit after you get your refund. Now, at the earliest, the IRS will start releasing refunds starting on February 15. Just because you amend your taxes, does not mean you will get audited.
Tara Thomas is a Los Angeles-based writer and avid world traveler. Her articles appear in various online publications, including Sapling, PocketSense, Zacks, Livestrong, Modern Mom and SF Gate. Thomas has a Bachelor of Science in marine biology from California State University, Long Beach and spent 10 years as a mortgage consultant.