First-Time Filer Mistakes and IRS Penalties

First-time tax filers often make avoidable mistakes—like missing a Social Security Number, using an incorrect W-2, or forgetting side income. These errors can lead to IRS penalties. Accuracy is your best defense—and the key to avoiding delays or fines on your first tax return.

Why Accuracy Matters When Filing Your First Tax Return

Accuracy in tax filing isn’t about neatness—it’s about preventing penalties, refund delays, and IRS notices. Even minor errors, like a missing SSN digit, can slow your refund or trigger fines. More than likely, if you e-file with an incorrect or incomplete SSN, the return will be rejected by the IRS. If you paper file, the IRS will send you a notice stating that your SSN does not match their records. Then, they will ask you to correct your return.

Here’s where most people trip up when filing their first tax return. Reviewing your forms against the IRS instructions can help catch mistakes early:

• An employer issued an incorrect W-2.
• Forgetting to include income from a side hustle or subcontracting gig.
• Filing a 1099 with no SSN on 1099 forms, leaving the IRS unable to match records.

When the IRS spots these mismatches, it may send you a notice, adjust your return, and tack on interest or penalties.

👉 Related: How to File Your First Tax Return

Common Mistakes First-Time Filers Make (and Their Consequences)

Missing or Incorrect Identification Numbers (No SSN on 1099)

Your Social Security Number (SSN) or Taxpayer Identification Number (TIN) is how the IRS knows you’re you. If an employer, contractor, or even you fail to include the right number, you may face penalties.

• Employers or payers may face a penalty of up to $310 per incorrect or missing taxpayer identification number (TIN) on an information return for 2025, depending on when the error is corrected.
• If your SSN or TIN doesn’t match IRS or Social Security records, your return may be delayed, and certain credits (like the Earned Income Credit) may be disallowed until corrected.

This often happens when a contractor doesn’t collect a payee's Social Security Number before issuing a 1099. Without that number, the IRS can’t match the income to the recipient, which creates compliance issues and may cause backup withholding. Individuals may also face problems if they file using a mismatched Social Security Number (for example, a name that doesn’t match Social Security records after a marriage or name change).

Example: You worked as a freelancer and received a 1099 without a Social Security Number. The IRS can’t match your income record—so you may face backup withholding or refund delays.

Sources:

• IRS Publication 17 (2025)
• IRS Rev. Proc. 2024-40, Section 3.46
• IRS Publication 501

Misreporting Income (Incorrect Form W-2)

If your employer issues an incorrect W-2, request a corrected copy (Form W-2c). Don’t file until you have it.

If you have already filed it, amend your return with Form 1040X. Omitting gig or bank income can lead to IRS notices and accuracy-related penalties—even if the error wasn’t intentional.

Other frequent reporting mistakes:

• Forgetting gig income information on Form 1099-NEC
• Skipping bank interest from Form 1099-INT
• Overlooking taxable scholarships or grants

These omissions can lead to an IRS notice adjusting your return and adding penalties and interest. Even if the oversight wasn’t intentional, the IRS considers it an error in reporting taxable income.

👉 Related: How to File an Amended Tax Return

Submitting a False or Fraudulent Return (False Return Penalty)

Most filing errors aren’t fraud—but if the IRS believes you intentionally misrepresented your income or deductions, the penalties can be severe. Fraud charges can mean hefty fines and even criminal prosecution.

Examples of situations that may lead to fraud penalties include:

• Intentionally omitting a second job or side business.
• Claiming dependents who aren’t eligible. Read more about dependency.
• Inflating deductions or business expenses without documentation.
• Using a false Social Security or taxpayer ID number to file a return.

If the IRS determines your mistake was unintentional (for example, due to negligence or lack of documentation), you may still face accuracy-related penalties, but they are typically less severe than fraud penalties. Always keep thorough paperwork and be honest in your reporting.

Source: IRS Accuracy-Related Penalty

Other First-Timer Errors That Cause Problems

• Filing late: Missing the tax filing deadline without an extension almost always means penalties.
• Forgetting to sign your return: Yes, it happens. An unsigned tax return is considered “not filed”.
• Ignoring IRS notices: The worst mistake you can make is pretending the letter doesn’t exist. Penalties grow the longer you wait.

Filing Options to Avoid First-Time Filer Mistakes

The IRS offers several filing options for first-time filers to reduce errors and penalties:

• IRS e-file: Fast, accurate, and secure (look for the locked padlock icon).
• Authorized providers: Use IRS-approved software or professionals.
• Security perks: Encryption and confirmation numbers give you peace of mind.

👉 Related: First-Time Filers Guide

IRS Penalties Explained for First-Time Filers

The IRS applies different penalties depending on whether you filed late, paid late, made reporting errors, or committed fraud. There are also penalties for filing a wrong return. Here’s what first-time filers need to know.

Failure-to-File Penalty

• This applies when you miss the tax filing deadline without an approved extension.
• The penalty is generally 5% of the unpaid taxes for each month (or part of a month) your return is late.
• The maximum penalty is 25% of your unpaid taxes.
• If your return is more than 60 days late, there’s also a minimum penalty—either $525 (for 2025) or 100% of the tax due, whichever is smaller. (IRS IRB 2024-40)

Failure-to-Pay Penalty

• This kicks in if you file your return but don’t pay the taxes you owe on time.
• The penalty is usually 0.5% of the unpaid taxes for each month (or part of a month) the tax remains unpaid.
• The maximum penalty is 25% of your unpaid taxes.
• Interest starts accruing on unpaid balances until you pay in full.

💡 Note: If you are subject to both a failure-to-file and a failure-to-pay penalty for the same month, the IRS reduces the failure-to-file penalty by the failure-to-pay amount. This means the combined penalty for that month won’t exceed 5% of the unpaid taxes.

Accuracy-Related Penalties

• These apply if you underpay taxes because of negligence, carelessness, or a substantial understatement of income.
• Negligence includes failing to make a reasonable attempt to follow IRS rules or failing to keep adequate records.
• Individuals are considered to have substantially understated their tax liability if they understate their tax liability by 10% of the tax required to be shown on their return or $5,000, whichever is greater. (IRS Accuracy-Related Penalty)
• Even though these penalties are less severe than those for fraud, they can still significantly increase your bill and reduce your refund.

Fraud Penalties

• Fraud penalties are reserved for cases where the IRS believes you intentionally tried to evade taxes.
• They carry the harshest consequences: 75% of underpayment due to fraud and, in extreme cases, possible criminal prosecution.
• Fraud can include deliberately failing to report income, falsifying documents, or using another person’s identification to file.

📎 Sources:

• IRS Penalties
• IRS Publication 17
• IRS Rev. Proc. 2024-40, Section 3.46

How to Fix Mistakes and Get Penalty Relief

Made a mistake? Don’t panic—fix it quickly:

• Amend your return (Form 1040X).
• Request penalty relief (first-time abatement or reasonable cause).
• Dispute penalties if you believe they were applied in error.

📎 Source: IRS Publication 3498 - Penalty Appeal Rights

👉 Related: Amended Return Guide

What to Do If You Owe (or Overpaid) Taxes

In the event that you made mistakes or owe the IRS, you still have several options to help resolve the issues. From payment plans to refund claims, here’s how to handle your next steps confidently.

If You Owe Taxes or Penalties

Owing the IRS isn’t the end of the world, but it’s essential to act fast to avoid penalties.

Your repayment options:

• Short-term payment plan:
  If you can pay the full amount within 180 days, you may qualify for a short-term plan with no setup fee (though interest and penalties continue until the balance is paid).
• Long-term installment agreement:
  Need more time? Apply for a monthly installment plan. Setup fees vary depending on how you apply (online, by phone, or by mail) and your payment method. Paying by direct debit usually reduces costs.
• Currently Not Collectible (CNC) status:
  If you can’t afford to pay right now, the IRS may temporarily delay collection. You won’t face garnishments or levies, but interest and penalties still accrue until your financial situation improves.

👉 Pro tip: Log in to your IRS Online Account to check your balance, set up a plan, or confirm your payment history.

If You Overpaid or Qualify for a Refund

If your tax withholding or estimated payments exceed what you owe, you can get your money back.

Refund basics:

• Eligibility: You can claim a refund if you’ve overpaid taxes or had penalties reversed.
• Time limits: Generally, you must file your claim within three years of the original filing date or two years from the date you paid the tax—whichever is later.
• How refunds are issued: Most refunds are sent via direct deposit or paper check. If you have other federal or state debts, the IRS may reduce your refund to cover those (called an “offset”). Starting October 1, 2025, the IRS will issue Visa debit cards in place of paper checks for refunds.

💡 Related resource: How to Track Your IRS Refund

Next Steps to Stay Compliant

Whether you owe or expect a refund, staying proactive can prevent future penalties:

• Read IRS notices carefully: Each letter includes deadlines and next steps—don’t ignore them.
• Amend errors promptly: Use Form 1040X if you discover mistakes on your filed return.
• Ask for penalty relief: First-time filers may qualify for penalty abatement due to reasonable cause or a clean compliance history. A penalty abatement can generally be requested once every three years if the IRS deems you to have previously paid all taxes and be in good standing.
• Work with a tax professional: If you’re unsure how to proceed, a qualified tax pro can help negotiate payment plans, request abatement, or file appeals on your behalf.
• Stay organized: Keep W-2s, 1099s, and correspondence in one place so next year’s filing goes smoothly.

👉 Related: First-Time Filer Checklist

Conclusion and Next Steps

Filing your first tax return can be intimidating, but accuracy and quick action are key to avoiding penalties.

Want a visual guide? Download our Penalty Avoidance Infographic (PDF) to see what common mistakes cost—and how to prevent them next year.

If you have more tax questions, contact a tax expert today!