The IRS is warning taxpayers they may need to amend their returns if they filed for three specific tax credits.
Many Americans may have fallen victim to misleading tax preparers or social media content that led them to think they qualified for the tax refunds courtesy of the credits. However, doing so could trigger delayed refunds or even jail time.
The three tax credits causing issues this year are the Fuel Tax Credit, Sick Leave and Family Leave credits and household employment taxes.
If you filed for any of these credits and don't have the proper documentation to verify you qualify, you'll likely end up with frozen refunds and an audit request.
People use IRS Direct File at the Internal Revenue Service Building on April 05, 2024, in Washington, D.C. The IRS warned taxpayers about three tax credits that have been incorrectly filed on tax returns. TASOS KATOPODIS/GETTY IMAGES FOR ECONOMIC SECURITY PROJECT
To avoid this, you should talk to a legitimate tax preparer to figure out whether you need to file an amended return.
"Scam artists and social media posts have perpetuated a number of false and misleading claims that have tricked well-meaning taxpayers into believing they're entitled to big, windfall tax refunds," IRS Commissioner Danny Werfel said in a statement.
Under the credit, you can reduce your taxable income for landscaping, farming, manufacturing, and construction companies. The credit is meant to offset the taxes the government charges on gasoline and diesel if that amount went toward business use.
Those who use fuel as commercial fishermen or in warehouse operations for forklifts are all eligible, as are school bus companies and some non-profits.
The IRS has previously listed the Fuel Tax Credit on its Dirty Dozen list because it regularly is one of the most widespread tax scams. Americans who incorrectly use the credit often do so at the advice of misleading financial "experts" or do so on their own accord, hoping for an artificially high refund.
Sick Leave and Family Leave Credit
The Sick Leave and Family Leave credits are two more that Americans routinely abuse to get a higher refund for the previous tax year.
The only people who are actually eligible are those who were self-employed for 2020 and 2021 during the pandemic, though. In fact, no one qualifies this year because the IRS said the credit is not available for 2023 tax returns.
Despite this, many are incorrectly using Form 7202 to attempt to get the credit based on income earned as an employee and not as a self-employed individual.
Previously, the credits were available to employers who paid sick and family leave.That eligibility only went to employers with less than 500 employees.
Household Employment Taxes
Another mistake many taxpayers made for tax returns this year was inventing fictional household employees and then filing a Schedule H (Form 1040). This theoretically allows you to claim a refund based on fake sick and family medical leave wages you never paid.
In reality, these taxes are limited to those who employ a nanny, housekeeper, landscaper or other type of worker within the home.
However, if you don't actually have any employees working in the home, you don't qualify for any refunds that would come based on taxes paid.
"These improper claims have been fueled by social media and people sharing bad advice," Werfel said. "Scam artists constantly prey on people's hopes and try to use the complexity of the tax system to convince people there are secret ways to get a big refund. These three credits illustrate that it's important to carefully review the tax return for accuracy before filing and rely on the advice of a trusted tax professional, not some fly-by-night preparer or a questionable source they hear on social media."
This year, taxpayers may have seen a record number of scams targeting them, often under the guise of financial expert influencers who could file their taxes and deliver a hefty refund despite them not qualifying.
"Various tax credits that help boost a refund make the rounds on social media, taxpayers pick up on the idea and file using the advice, and the IRS has to sort through claims that are incorrectly reported," Alex Beene, financial literacy instructor at the University of Tennessee at Martin, previously told Newsweek.
If you choose not to amend your tax return and you filed for one of these tax credits improperly, you could have to pay up to $5,000 per return for your frivolous claim.
"Ignore the trendy credits on social media you may see, because most apply to business circumstances, not those of personal tax filers," Beene said. "Most importantly, if you find yourself in a situation where you inaccurately reported something, it's important to work with the IRS to clear up any inconsistencies immediately. It's pivotal the IRS understands this was an unintentional error and not one meant to take advantage of the tax code to get a larger refund."
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