How To Recognize & Avoid W-2 Scams: Comprehensive Guide

The IRS Form W-2, Wage and Tax Statement reports the annual income and withheld tax amounts from each employee’s pay stubs. Unfortunately, scammers use the IRS form to exact various tax frauds, including W-2 scams.

A W-2 scam is one of the many phishing activities used by criminals to try and steal an employee’s tax and employment information. When not addressed immediately, the employee and their employer could face penalties and lawsuits and even end up in jail.

In this article, we’ll delve into the essential pointers that will help you pinpoint a W-2 scam in an instant. Additionally, you will learn the efficient strategies and defenses you can use if W-2 scammers target you.

Key Takeaways

• W-2 scams involve phishing employees' tax-related information, such as their annual income withheld tax amounts and Social Security numbers.
• Employers who have fallen victim to W-2 scams may face legal action due to their lack of security practices against fraud and identity theft. Employees or individual taxpayers involved in W-2 and other tax-related scams may face penalties worth as much as $5,000.
• Some of the best practices to counter W-2 scams include educating and training employees on how to spot W-2 scams, updating the company’s cybersecurity measures, and staying up-to-date with any news involving tax-related fraud.
• Employers and employees can report W-2 scams by reporting the incident to the IRS or the state tax agency, filing IRS Form 3949-A, or filing a complaint with the FBI’s Internet Crime Complaint Center.

What Are W-2 Scams?

W-2 scams are a type of phishing wherein scammers attempt to phish or access the personal details of employees on the W-2 forms, such as their names, addresses, withheld tax amounts, Social Security numbers, and annual income.

Scammers use the stolen information to claim tax refunds, file forged tax returns, or sell the stolen data online to fellow cybercriminals. Some scammers use a fake W-2 for employment verification while trying to get approved for a loan using an employee’s stolen identity.

W-2 scams become more apparent during tax season, with employers, human resources, finance, and payroll personnel often the targets of the said modus.

Those who fall prey to W-2 fraud receive a phishing email instructing them to send an employee’s W-2 information and earnings summary or the company’s updated list of employees to the scammer’s fake email.

W-2 Scam Phishing Email Examples

Here are examples of W-2 phishing emails sent to a company’s Human Resources department and employees:

Sample Phishing Email Sent to HR

Email Subject: Urgent: Copy of Employees Wage & Tax Statement 2023

Hi <Name of HR Personnel>,

As part of our company’s annual review, can you forward to me the updated list of all our W-2 employees, including their complete details.

Include their name, home address, date of birth, contact information, Social Security Number, annual wages and taxes. Send all the details to me ASAP in PDF form, as an attachment.

Sample Phishing Email Sent to Employees

Email Subject: W-2 Update

Good Day,

We are sending you an amended Form 1040 on behalf of <Company Name>. The amended form was prompted by an error in your employer’s control number.

To access the amended Form 1040, click the link below and follow the steps to update your W-2. If you have already filed your amended 1040 with the IRS, you are required to file a supplemented Form W-2c.

How Do W-2 Scams Work?

Here’s how IRS Form W-2 scams work:

Step #1. Data Gathering

Fraudsters scour through a company’s website and social media profiles to find high-ranking employees and executives whose personal details they can use to forge a realistic-looking work email.

Step #2. Email Domain Spoofing

Consequently, they use the accumulated information to imitate the company’s CEO or executives, create an email using their personal information, and compose a phishing W-2 email.

Step #3. Phishing

In the email, the fraudster impersonates a company executive or a high-ranking staff member. It requests the recipient, typically the company’s payroll, finance, or human resources staff, to send the employees’ W-2 information.

Once a target obliges and mistakenly sends employees' W-2 forms and personal information to a fraudster, the latter uses all the illegally collected information to make fraudulent tax returns or try to get a refund from the IRS.

Some phishing emails also contain links to malicious websites designed to mine information on the unsuspecting individual who opened the suspicious link.

Aside from the typical phishing email, a W-2 fraud may be a false ad or promotional post on social media. The inaccurate advertisements persuade people into believing they can fake a Form W-2 to file counterfeit tax returns in exchange for a hefty tax refund.

How Dangerous Are W-2 Scams?

W-2 scams have become more dangerous, considering how technology and the internet make it easier for scammers to forge emails and fool more people into giving sensitive information on their W-2 forms.

Not to mention the IRS has also warned taxpayers about the rapid evolution of W-2 scams over time. For instance, some scammers carry out W-2 phishing scams simultaneously with other types of fraud, such as those that involve milking money out of their victims through wire transfers.

W-2 scams have a long-lasting impact on the individuals whose Wage and Tax Statement information was stolen and the businesses whose employees were targeted by the crime.

Aside from losing the trust of their employees, employers may also face multiple lawsuits for breaching their employee’s data security.

Tax filers who are proven to have voluntarily participated in W-2 scams may face a frivolous return penalty worth $5,000 or, worse, a criminal prosecution for filing fraudulent tax returns.

Meanwhile, employees may find themselves entangled in more crimes involving falsifying legal documents, securing and completing unauthorized loansand purchases, and tax-related transactions carried out under their name.

How To Protect Yourself From W-2 Scams

Fortunately, there are specific practices you can implement to stay protected against W-2 scams, and these are:

#1. Report Suspicious Emails

If you encounter any suspicious email involving employee tax forms and information, alert the proper authorities immediately.

Do not delete the email, and take note of the sender’s email address. Refrain from clicking any links included in the email as well.

By alerting the authorities early on, you can help trace the origin of the phishing attempt and prevent scammers from successfully stealing sensitive employee and company information.

More importantly, you can avoid getting penalized and unwillingly dragged into fraudulent activity.

#2. Raise Awareness

Take the time to orient your employees on the dangers of W-2 scams and other criminal activities that may put their personal information and security at risk.

Provide ample training for your Human Resources and payroll staff to help them identify signs of W-2 fraud and take the necessary steps to prevent the scam. Prepare a handbook that details everything that employees must know about W-2 scams.

Better yet, specify how employees can report suspected tax violations and fraudulent tax activities.

#3. Regularly Update Your Security Systems

Take the time to upgrade your company’s security systems by having your employees undergo consistent training on the effective practices they can adopt to boost their cybersecurity.

Give concrete examples of how employees can determine emails for phishing personal information. A W-2 phishing email often contains sentences with spelling and grammatical errors, suspicious links, and unskillfully photoshopped logos.

You can also train employees to verify links in the emailsthey receive and show them which details to focus on to identify fake company emails.

#4. Limit Employee Access

One of the possible reasons why W-2 scammers may target your company is the lack of explicit limitations on who can access your employees’ income tax and employment information.

Make it a point to make access to your employees’ personal and sensitive details exclusive to your Human Resources, Finance, and Payroll departments only.

If you use payroll software, instruct your employees to secure their login credentials and refrain from sharing them with others, including their co-workers, friends, and even relatives.

#5. Consistently Educate & Update Your Staff

The IRS is adamant about catching and putting a stop to W-2 scams and all other forms of tax-related fraud. As such, staying updated on any announcements and news related to IRS W-2 scams is wise.

Check their website occasionally, and remember to convey the information to your employees.

#6. Use AI and Other Advanced Preventive Measures

Artificial intelligence lets you use account takeover (ATO) protection, which enables you to alert recipients of phishing emails or emails with suspicious links, detect hacked or compromised employee accounts, and ultimately block cyberattacks from scammers.

You can also enforce data loss prevention (DLP) to prevent data breach attempts on your employees’ W-2 information and anti-spoofing to keep cybercriminals from triumphantly using falsified website domains and emails.

How Do I Report a W-2 Scam?

If you have unfortunately fallen victim to W-2 scams, here are some countermeasures you can take to regulate the impact and damages caused by the said crime.

Employees and employers can forward the phishing email to the IRS. The IRS likewise has specific instructions for saving and forwarding the emails sent by scammers to phishing W-2 information. As much as possible, alert your employer or inform the IRS immediately upon detecting the fraud.

Below are more detailed tips on what employees and employers should do if they get scammed using their W-2 information.

How to Deal With W-2 Scams as an Employee

The IRS lets employees report suspicious tax-related activities through their e-file program. Taxpayers can also check the IRS’ guide to see which courses of action they can take to retrieve or recover their personal information.

Additional guides you can check include Publication 4524, Security Awareness for Taxpayers,and Publication 5027, Identity Theft Information for Taxpayers.

You can also use Form 3949-A, Information Referral, to report individuals and businesses suspected of violating existing federal or state tax laws.

How to Deal With W-2 Scams as an Employer

The first step employers can take if they find themselves entangled in a W-2 scam is to alert the IRS about the data breach. They may do so by sending an email to dataloss@irs.gov.

Employers must provide complete details about the identity theft, meaning they must specify their company or business name and contact information, employee identification number, and the number of employees whose W-2 information was compromised.

Employers can take other courses of action, including reporting the incident to their state tax agency by emailing StateAlert@taxadmin.org or filing a complaint with the FBI’s Internet Crime Complaint Center.

The Importance of Securing W-2 Forms

The importance of W-2 forms in preventing scammers from successfully carrying out W-2 and other tax-related fraud lies in how you safeguard your Form W-2. W-2 scams are not limited to phishing scams alone.

At times, some individuals without the best intentions may take advantage of having access to their co-workers’ W-2 forms and other documents related to their tax and employment information.

An effective way to secure employees’ W-2 forms involves using a W-2 form generator. Paystub.org’s W-2 form generator allows employers to create electronic copies of their employees’ Wage and Tax Statements and store copies securely to prevent data breaches.

The generator has a template containing all the critical elements in an IRS-issued W-2 form.

Simply enter all the necessary information, such as the employee’s marital status, number of dependents, and annual gross income from the previous year, as well as the amount of federal, state, Medicare, and Social Security taxes withheld from your salary.

Preview the document to verify all the correct information, then generate and download the W-2 form.

Final Thoughts

W-2 scams are some of the sneaky ways that fraudsters and cybercriminals attempt to steal personal information from unsuspecting victims. The said scam becomes more rampant during tax season.

Prevention is the best countermeasure against any type of fraud.

In other words, educating yourself and your staff on the different scams designed to target their employment, personal details, and tax information is the best and easiest way to protect them from fraudulent schemes and cyberattacks.

W-2 Scams FAQ

#1. How can I protect myself from W-2 scams?

You can protect yourself from W-2 scams by being educated on the different ways to identify phishing and W-2 scams. Additionally, you can report any suspicious or malicious emails to the authorities.

#2. How can I tell if a letter from the IRS is real?

You can tell if a letter from the IRS is real if it contains either a letter or notice number at the top or bottom right corner. The letter or notice number lets you search for additional information on notices received on the IRS website.

Authentic IRS notices bear the official IRS logo at the top. Remember, the IRS only sends taxpayers letters after they even have the chance to file their tax returns.

#3. Can someone steal my identity using my W-2 form?

Yes, someone can steal your identity through your W-2 form, mainly if they steal your Form W-2 and other tax documents containing your personal information. It is also possible for cybercriminals to hack into an unsuspecting taxpayer’s online IRS account.