Off-the-Books Pay, On-the-Books Risk: W-2 Fraud Suit Moves Forward
Most payroll pros would rather not start thinking about W-2s until after Thanksgiving. But a new ruling on unreported cash wages should be on your radar now.
Do Unreported Cash Wages Amount to W-2 Fraud?
Eight former employees at a Hempstead, N.Y., car wash sued its operators, alleging the employer paid some wages off the books and omitted them from W-2s.
According to the workers, they were paid partly by check and partly in cash, and their W-2s reported only the check amounts. They claim the employer knew about the cash, knew it should’ve been reported and left it off anyway. Under federal tax law, they say, that makes the W-2s fraudulent. Each fraudulent W-2 can cost an employer at least $5,000 under that law.
The operators argued that the law only covers W-2s that overstate pay. On Oct. 16, a federal judge in New York disagreed and let the fraud claim move forward.
This ruling provides a reminder and a warning: Cash wages belong on W-2s, too. Knowingly leaving them off can bring a W-2 fraud lawsuit from your own staff.
Keep an eye on this case in 2027. Other federal courts in Colorado and South Carolina have taken a narrower view of similar claims involving alleged W-2 fraud.
More info: Hernandez v. Monteiro
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