The IRS is telling some of its employees, in the final weeks of the filing season, that their wages were miscalculated on tax forms, and that they may need to submit corrected tax returns.
The errors concern the non-taxable portion of overtime wages. The One, Big Beautiful Bill Act that was signed into law last year eliminated taxes on overtime from 2025 to 2028. Individual taxpayers may deduct up to $12,500 in overtime wages from taxable income, and joint filers can deduct up to $25,00o.
In an email sent this week, the IRS told some employees that the National Finance Center, a governmentwide payroll provider based in the Agriculture Department, “determined that overtime earnings were miscalculated and underreported” on their tax forms.
“We are writing to inform you of an issue identified with the Form W-2 previously issued by the National Finance Center for the most recent tax year. If you are receiving this message, you have been impacted and will need to take action,” the email states.
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Impacted employees have received corrected W-2 forms with the correct amount of taxable overtime earnings. The IRS is telling employees to submit an amended tax return with the correct amount of overtime earnings “if it changes the amount of your total tax.”
“For most employees, this correction does not change taxable wages or withholding; however, you should review your individual form carefully,” the IRS told impacted employees.
With the tax filing window closing on April 15, the IRS acknowledged that “many employees may have already filed their returns.”
An IRS spokesperson declined to comment.
Some IRS employees expressed concern over the notice, because remaining in good standing with their tax obligations is a requirement for their jobs. The Office of Government Ethics requires all federal employees to “satisfy in good faith their obligations as citizens, including all just financial obligations, especially those such as federal, state or local taxes that are imposed by law.”
Shannon Ellis, president of the National Treasury Employees Union Chapter 66, which represents IRS employees in Kansas City, said in an email that this error “could lead to discipline and/or removal.”
“The other fear is if some employees are not aware of the error yet,” Ellis said.
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The IRS is advising impacted employees to notify their managers about this issue and to retain a copy of their notice, in case they are flagged by the agency’s Employee Tax Compliance Program.
If the IRS imposed a penalty on employees who inadvertently filed an inaccurate tax return, the agency has advised employees to call and request the penalty be waived, “noting the IRS error in originally issuing an incorrect W-2.”
“Employees who may be affected by this correction should file an amended return, even if they are unable to pay any additional tax owed,” the agency wrote.
The IRS lost more than a quarter of its employees so far under the Trump administration, and fell short of its hiring goals for the filing season. Ellis said contactors hired by the IRS cannot keep up with the workload, “and have sent much of it back to the IRS.”
“This has created an issue with timeframes and now employees are being forced to work 30 hours or more overtime every week until we correct the contractors’ errors,” she said.
An IRS employee who received this notice told Federal News Network that coworkers are concerned about having to pay additional fees to tax preparers to file corrected returns.
“This is a real issue for employees who really need to be sure they are in compliance when filing their returns, or they could lose their jobs,” the employee said.
The IRS employee, who requested anonymity for fear of retaliation, said the IRS has been running on “extensive mandatory overtime.”
A second IRS employee that this will be the first time in his nearly 40-year career that he is filing an amended tax return.
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“My main concern is that underreporting will later cause issues for employees, as we need to be in compliance,” a third IRS employee said.
A fourth IRS employee said mistakes like this were bound to happen. The agency lost more than 25% of its staff, but faced a busier-than-usual filing season under the One, Big Beautiful Bill Act and had to update dozens of federal tax forms to reflect changes made under the legislation.
“When you hound tons of human capital office employees out of the service … get people to do much more with so much less, how can it be any shock that the first implementation of a newly assigned formula for what portion of OT pay would be taxable would go awry?” the fourth employee said.
The email states that the IRS is “currently evaluating options to minimize burden on affected employees.”
The IRS told employees that Volunteer Income Tax Assistance (VITA) sites located in many of its large offices will be available to help impacted employees prepare and electronically file amended returns, if needed.
The IRS wrote that managers are encouraged to “provide reasonable time for impacted employees to access VITA services during duty hours.”
This is not the first time this year that the IRS has notified employees about potential filing errors. In a Jan. 28 notice, the IRS told employees that the wrong pay period was established as the first pay period of calendar year 2026 for W-2 purposes.
“As a result, some calendar-based deductions, for example, Social Security and Thrift Savings Plan, processed incorrectly. This led to inaccuracies in the [year-to-date] totals displayed,” the IRS wrote.
The IRS told employees that USDA’s National Finance Center fixed these errors, but encouraged employees to review their earnings and leave statements.
IRS Chief Executive Officer Frank Bisignano told the House Ways and Means Committee earlier this month that the filing season “has gone smoothly so far.”
“We’re 40% through the tax season, and we hear in every corner that it’s going well,” Bisignano said during the March 4 hearing.
Sen. Elizabeth Warren (D-Mass.), a member of the Senate Finance Committee, and Sen. Angus King (I-Maine) led 15 other senators in a Dec. 21 letter raising concerns about the IRS’ readiness for the filing season.
“We write with serious concerns that the Internal Revenue Service (IRS) is not prepared for the upcoming tax filing season and that American taxpayers may face delays and difficulties in filing their tax returns and receiving their tax refunds,” the senators wrote.
If you would like to contact this reporter about recent changes in the federal government, please email [email protected], or reach out on Signal at jheckman.29
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