In a letter to the Chair of the Information Reporting Program Advisory Committee, the IRS summarizes the consequences of using incorrect information when filing Form W-2.  Sections 6721 and 6722 impose penalties for filers who incorrectly file their tax returns. The letter is important in the immigration context because employers hiring undocumented workers are more likely to run afoul of IRS rules.

Section 6721 imposes a penalty for failing to include all required information or for including incorrect information.  The penalty can be $50 per tax return, to a maximum of $250,000 per filer per year.  If the filer corrects the information within thirty days, this penalty can be reduced to $15 per return, to a maximum of $75,000 per year.  If the information is corrected by August 1, the penalty may be reduced to $30 per return, to a maximum of $150,000 per year.  For filers who intentionally file incorrectly, there is no annual limit on the penalty amount.

Section 6722 imposes a penalty for failing to provide an employee or payee statement on or before the due date, failing to include required information or for including incorrect information.  The penalty for this is $50 per payee statement, up to an annual limit of $100,000 per filer per year.  If the filer intentionally files incorrectly, there is no annual limit.

There are provisions of the Internal Revenue Code for situations “beyond the filer’s control,” such as an employee who provides an incorrect social security number to the employer filing the return.  In this case, the filer (the employer) must demonstrate that the failure to provide the required information to the IRS was the result of the employee’s failure to provide information to the employer, or the result of the employee providing incorrect information to the employer, upon which the employer relied.  The employer may qualify for a waiver of any penalties if he/she can demonstrate that he/she acted responsibly, before and after the failure to provide complete and correct information.