IRS Alert: Tax Scams & Social Media

Take outs:

• The IRS warns taxpayers about the proliferation of tax scams and misinformation on social media platforms. Scams related to Fuel Tax Credit, Sick and Family Leave Credit, and household employment taxes have been identified as particularly prevalent. Taxpayers are strongly advised to avoid such schemes to prevent potential loss of refunds and legal consequences.

• The article highlights three specific tax credits – Fuel Tax Credit, Sick and Family Leave Credit, and household employment taxes. It emphasizes the eligibility criteria, application process, and common misconceptions associated with each credit. Proper understanding and compliance with tax laws are essential to avoid falling victim to fraudulent schemes.

• The IRS is actively combating tax fraud through enhanced identity theft screening filters and rigorous review processes. Taxpayers who unknowingly submit false claims may face penalties and audits. It's crucial to seek guidance from qualified tax professionals and thoroughly review tax returns before filing to ensure compliance and avoid potential repercussions.

IRS Alert: Tax Scams & Social Media

The IRS cautions taxpayers about tax scams and misinformation on social media, which resulted in numerous inflated refund claims last tax season. The latest alert targets scams related to the Fuel Tax Credit, Sick and Family Leave Credit, and household employment taxes. Refunds associated with these schemes are being withheld, and taxpayers are strongly advised to steer clear of such scams.

Fuel Tax Credits

The fuel tax credit targets off-highway business and farming activities, specifically excluding vehicles designated for public road use such as cars, motorcycles, and standard trucks. To qualify, individuals must demonstrate a legitimate business purpose, engaging in activities like farming or purchasing aviation gasoline. Despite being typically claimed through Form 4136, the credit cannot be applied to routine business mileage, contrary to some misleading social media claims.

Unfortunately, fraudulent schemes have arisen, prompting the IRS to heighten efforts in combatting deceit with new identity theft screening filters. Taxpayers are advised against involvement in such schemes and encouraged to consult qualified tax professionals for clarity on their eligibility for the fuel tax credit.

Credits for Sick Leave and Family Leave

Under the Families First Coronavirus Response Act (FFCRA), eligible employers can receive tax credits for wages paid during pandemic-related leave taken by employees, while self-employed taxpayers can also claim tax credits for paid sick leave and family leave under sections 3131 and 3132. These credits aim to aid individuals in recovering from missed workdays due to Covid illness, quarantine, or family care obligations, although they were only available for 2020 and 2021 and are not applicable for 2023 tax returns.

These refundable credits, valued up to $5,110 for qualified sick leave wages and up to $12,000 for qualified family leave wages, are limited by one's self-employment earnings and can be claimed through an amended return if not previously utilized. However, the IRS has observed instances of taxpayers incorrectly seeking these credits based on employee income rather than self-employment earnings, which does not meet the statutory criteria, and notes another level of the scheme targeting household employment taxes.

Household Employment Taxes

Household employees, including babysitters, cleaners, and gardeners, are subject to taxes, often collectively known as "nanny taxes." While a worker need not be full-time to be considered a household employee, there's a crucial distinction between household work performed as an employee and services provided as an independent contractor. If you pay over $2,700 in cash wages to a household employee during the year (the threshold for 2024), you're obliged to remit payroll taxes, including 6.2% for Social Security and 1.45% for Medicare on the employee's side, with employers matching these amounts. However, a scheme related to household employment taxes involves taxpayers fabricating household employees and filing Schedule H, Household Employment Taxes, to claim refunds based on fictitious sick and family medical leave wages they never actually paid.

Stay Vigilant

Exploiting the complexity of the tax system, scammers persuade people there are hidden methods for securing hefty refunds. The three credits in question highlight the need for thorough tax return reviews before filing and reliance on credible tax professionals rather than questionable preparers or dubious online sources. The IRS advises individuals to confirm if their tax preparer signed the return, as the absence of a signature raises concerns about misleading practices. If the IRS identifies improper claims, it freezes the entire refund, regardless of legitimate credits claimed. Recipients of flagged claims will receive IRS Notice 3176c, requiring identity verification and confirmation of credit eligibility.

Taxpayers realizing they wrongly claimed credits may need to amend returns to avoid penalties and audits. The IRS has emphasized the prevalence of deceptive claims and the extensive review process awaiting those who unknowingly submitted false returns. The IRS continues to caution against such scams, especially those promoted on social media.

If you have any questions or concerns about your taxes, get in touch with one of our tax experts today.