Taxpayer asks:
Dear Taxgirl,
My tax question is I received a w2 after filing my return last year will I get a hard penalty for filing an amended return this year for last year taxes. Or will take the taxes I owe from amended return from my refund this year?
Thank you.
Taxgirl says:
I’m going to make a couple of assumptions here based on experience. I am going to assume that you received an original form W-2 (as opposed to a corrected form W-2) shortly after you filed your 2016 tax return in 2017. And I am going to assume further that you filed your 2016 tax return early based on an estimate or last pay stub because you wanted your refund quickly.
Not only is that a bad idea, it’s against the rules: The Internal Revenue Service (IRS) specifically bars tax preparers from e-filing your tax returns without receipt of forms W-2, W-2G, and 1099-R. And while there are some tax preparers who will do anything for a dollar, I would advise you to find a tax professional who is willing to explain what can happen to you when you file without the right documentation.
It sounds like you already know that the extra form W-2 will result in an additional tax. Eventually, IRS is going to come looking for that money. Unlike overstated deductions or other undocumented tax moves, the IRS can easily match forms W-2 to the information on your tax return: If the information doesn’t match, the IRS will flag your return.
When the IRS flags your return, one of two things will generally happen. One, the IRS can simply assess you for more tax, which means they’ll send you a bill. A second possibility is that the IRS may determine that an audit/exam is in order, especially if this appears to be a pattern or if there are other inconsistencies on the return.
To avoid potentially unpleasant issues, the best thing to do when you realize that you have underreported or if you receive a tax form after you have already submitted your tax return is to fix the mistake – purposeful or not – by filing an amended return, form 1040X. Penalty and interest begin to accrue as of the date that tax is due (in your case, April 18, 2017) and not when the tax is assessed. That means that every day that you wait to file and pay, you’ll owe more money to IRS.
Since you haven’t yet filed an amended return for 2016, I suspect your real question is whether you can file your 2017 tax return in 2018, get your entire 2018 tax refund, and delay the payment of the additional tax from that 2016 liability. The answer is maybe.
Typically, as noted, if you owe taxes, the IRS will send you a bill. If you don’t pay the bill and you are due a tax refund, the IRS will adjust your refund. However, if you haven’t received a bill but the IRS has pulled your return – and there’s a time lag because of a processing or mailing issue – part or all of your tax refund could be delayed. If you haven’t received a bill and you file an amended return, it’s possible that your 2017 tax refund may be affected but that largely depends on timing since amended returns typically take 6-8 weeks to be processed.
That said, if you haven’t yet received a bill, you haven’t filed an amended return, and you’re hoping to claim your tax refund now and deal with any tax owed “later,” I’m going to suggest that’s a terrible strategy. If you don’t have the money to pay now, you’re likely not going to have the money later – especially with the addition of interest and penalty. And you’re taking a gamble by not filing an amended return because you’re assuming you’ll beat IRS to the punch.
The bottom line: Mistakes happen. And when you realize that you’ve made a mistake, you fix it. Depending on what happened – and if it’s the first-time gaffe – the IRS may be amenable to waiving the penalty (by law, interest typically remains in place). But if it’s a calculated effort to try and game the system, you should be aware that the IRS has seen this before and the consequences can be significant.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
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