Does My Employer Report My Income to the IRS?

For many people, federal income taxes take a big chunk out of their paychecks. While some taxpayers are entitled to a refund at the end of the year, it is possible to still owe more if your withholding doesn’t fully cover your federal income tax liability.

Under federal law, employers must report their employees’ income to the Internal Revenue Service (IRS). Employers must also typically deduct income and FICA taxes from their employees’ paychecks, and they must pay these taxes over to the IRS. Employers that fail to report their employees’ income and pay over their employees’ tax withholdings can face steep penalties, and employers also get to take payroll deductions. In other words, employers have plenty of reasons to report their employees’ income, and most do so as required by law.

What Happens if My Employer Reports My Income to the IRS and I Don’t?

Now that you know your employer most likely reports your income to the IRS, you may have another question: “What happens if my employer reports my income to the IRS and I don’t?” The short answer is, “It depends.”

Specifically, it depends on whether you owe additional income tax. If you owe more than you have already paid through your withholdings, failing to report your income to the IRS can have serious consequences. At a minimum, you can face liability for back taxes, interest and penalties. But, if the IRS determines that you have intentionally failed to report your income in an effort to avoid paying income tax, you can potentially face criminal charges for tax evasion or tax fraud.

Even if you don’t owe additional tax, you must still report your income to the IRS—the consequences of failing to do so just aren’t as severe. The IRS imposes penalties for both failure to pay and failure to file, so if you don’t file a tax return annually, you can still be penalized even if you aren’t behind on your taxes.

What Should I Do if I Haven’t Reported My Income to the IRS?

Since employers generally report their employees’ income to the IRS, if you don’t report your income, the IRS will most likely know. With this in mind, what should you do if you haven’t reported your income to the IRS in the past?

In this situation, the steps you need to take depend on your individual circumstances. In some cases, filing a delinquent return might be the right approach. But, in others, it might not. If you are at risk of facing criminal prosecution for tax evasion or tax fraud, then you may need to consider alternatives such as voluntary disclosure. An experienced tax attorney can help you make an informed decision, and it is in your best interests to speak with an attorney before you submit anything to the IRS.

Request an Appointment with Tax Attorney Kevin E. Thorn in Washington D.C.

If you need to know more about how to protect yourself from tax-related penalties (or allegations of tax evasion or tax fraud), we invite you to get in touch. Please call 202-349-4033 or contact us online to request an appointment with tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group.