What happens if someone “forgets” to claim a part-time job? Let’s assume they made about 10k from this part-time job and they forget to claim the taxes on it. What’s the likelyhood that it would get caught? What is the penalty if does?
Forgetting to report Income from Part-time Job
If the payment is reported to the IRS on a 1099 or W2, then there is almost a 100% chance the IRS will notice and propose an adjustment. The penalty will vary, the IRS often puts an automatic 20% negligence penalty (20% of the unpaid tax) on an unreported 1099 or W2, especially if it has happened more than once. Interest will also apply to the unpaid tax owed.
Not Reporting All the Income
The IRS would send a letter with proposed changes to the tax return, based on the information they have, and they would send a bill for the underpayment. Eventually, if the person does not comply and pay (this is the point where it’s easiest to have some sort of compromise or payment plan), they would send a notice of deficiency, and 90 days after that, if the taxpayer doesn’t do anything, they would assess the tax and be able to start collection. After this, they would send a notice and demand for payment, where there would still be options to have a payment plan. After this, they can collect by levying on personal assets and by levying on wages or future tax refunds.
Potential False Tax Return Filing Penalty
If a 1099 was issued, a false filing penalty would also be imposed. The taxpayer would have received the 1099 in the mail. But if this is a part time job and as you mentioned, and the taxpayer had amounts withheld, they would be getting a W-2. The IRS uses computers to match the W-2’s submitted by the employer to the W-2 income listed on the person’s tax return via the social security number. It’s 100% automatic and your friend WILL get a notice, but it wont be for a while, probably mid to late summer. This is what will probably happen if someone forgets to report income from a part-time job on their tax return.