Fake Paystub Detection: A Tax Preparer's Guide

Fake paystubs typically show rounded dollar amounts, inconsistent fonts between fields, and math errors in year-to-date calculations. If the gross pay minus deductions does not equal the net pay, the document was likely generated by a template site rather than real payroll software.

Tax preparers see fabricated income documents every season. The IRS estimates that 33% of Earned Income Tax Credit claims contain errors, with half involving misreported income.¹ For accountants doing tax prep and write-up work, spotting fake paystubs before filing protects both your clients and your practice from penalties.

Conto’s document extraction flags mathematical inconsistencies automatically, but visual inspection and verification remain essential when client documentation seems off.

Table of Contents

• The Underground Fake Document Market
• Why Clients Bring Fake Paystubs
• Visual Red Flags in Fake Paystubs
• Mathematical Red Flags
• Verification Techniques
• Tax Preparer Liability
• What to Do When You Suspect Fraud
• FAQs

The Underground Fake Document Market

Fabricated income documents are sold openly on Facebook Groups, Fiverr, and Telegram channels. Sellers offer fake paystubs, W-2s, bank statements, and employment verification letters, often advertising “payment after approval” to attract customers who need documents for rental applications, loans, or tax refunds.

Over 200 paystub templates are available on sites like Doc Juicer, making production of fakes surprisingly simple.² The templates accept any employer name, pay rate, and deductions, generating professional-looking PDFs within minutes. Prices range from $20 to $100 depending on complexity.

The prevalence of these services surged in 2024 and 2025. Income fraud increased 27.3% from 2021 to 2022 according to CoreLogic’s Annual Mortgage Fraud Report.³ Snappt analyzed over 15,000 rental applications in 2020 and found a 14% fraud rate on average, with fabricated paystubs being the most common falsified document.⁴

This is not a fringe problem. These services exist because demand exists. Some of your clients may arrive with documents generated by these services, whether they know it or not.

Why Clients Bring Fake Paystubs

Not every client with a fabricated paystub is intentionally committing fraud. Understanding the motivations helps you assess risk.

Inflated income for tax refund fraud. The Earned Income Tax Credit provides refunds up to $7,830 for qualifying taxpayers in 2025.⁵ Some individuals fabricate income to qualify for EITC when they have no actual earnings, or inflate income to maximize the credit. TIGTA (Treasury Inspector General for Tax Administration) has flagged EITC as having a 22-34% improper payment rate for over two decades.⁶

Rental and loan qualification. Fabricated paystubs help applicants meet income requirements for apartments, auto loans, and mortgages. The client may not realize this fraud extends to their tax return when they provide the same documents to their accountant.

Self-employed clients with irregular income. Some self-employed individuals create paystubs to legitimize their income when banks or landlords demand traditional employment documentation. While the underlying income may be real, fabricated paystubs to prove it are still fraudulent documents.

Documents from employers who commit fraud. Occasionally clients receive paystubs from employers engaged in payroll fraud. The employee may have no idea the documents are fabricated or that their reported wages differ from actual payments.

Visual Red Flags in Fake Paystubs

Fake paystubs created from templates often share visual characteristics that distinguish them from documents generated by legitimate payroll software.

Font inconsistencies. Real paystubs use consistent fonts throughout. Templates often mix fonts because users type into different fields. If the payee name appears in a different font than the employer name, or if some numbers look different than others, this signals editing.⁷

Alignment problems. Authentic paystubs from payroll software have precise alignment. Columns line up. Decimal points align vertically. Fabricated documents often show uneven spacing, misaligned columns, and text that does not sit properly on lines.⁸

Blurry or pixelated logos. When someone copies an employer logo from a website and pastes it into a template, the resolution often degrades. A blurry logo on an otherwise crisp document suggests fabrication.⁹

Spelling errors. Legitimate payroll software does not produce spelling errors in standard fields. Mistakes in words like “Federal,” “Medicare,” “Withholding,” or the employer’s name indicate manual creation.

Generic or missing details. Real paystubs include specific employer details: full legal company name, address, phone number, and Employer Identification Number (EIN). Templates often omit these or use placeholder text. Missing EIN is a strong red flag.

Professional appearance paradox. Ironically, some fake paystubs look too polished. Real paystubs from small business payroll software can look plain. A fancy design with decorative borders and graphics may indicate a template designed to impress rather than a functional payroll document.

Mathematical Red Flags

Numbers tell the story. Fake paystubs routinely fail basic mathematical verification.

Rounded numbers. Real paychecks after deductions rarely land on round numbers. A net pay of exactly $2,500.00 or gross pay of $4,000.00 should trigger scrutiny. Legitimate payroll calculations produce amounts like $2,487.63 or $3,998.21.¹⁰

Deductions that do not add up. Subtract all listed deductions from gross pay. The result should equal net pay exactly. If the math is off by even a dollar, the document was likely manually created without proper calculations.

Year-to-date inconsistencies. YTD figures should accumulate logically across pay periods. If the YTD gross income on a late-year paystub seems too high or too low relative to the per-period gross pay multiplied by pay periods elapsed, investigate further.

Tax withholding that does not match rates. Federal income tax withholding should approximate expected rates based on income level and filing status. Social Security tax is 6.2% of wages up to the cap. Medicare is 1.45%. If these percentages are wildly off, the document was not generated by compliant payroll software.¹¹

Identical figures across pay periods. Real deductions vary slightly based on pre-tax contributions, overtime, and other factors. Multiple paystubs showing identical net pay down to the cent across different pay periods suggest templated documents.

Missing mandatory deductions. Legitimate paystubs show Social Security and Medicare deductions. If these are absent, the document is not from a real payroll system. State tax withholding should also appear for employees in states with income tax.

Verification Techniques

When paystubs seem suspicious, several verification methods can confirm or refute authenticity.

Cross-reference with W-2 forms. At year-end, compare the final paystub’s YTD figures to the W-2. Box 1 wages should match YTD gross (minus pre-tax deductions). Box 2 federal tax withheld should match YTD federal withholding. Significant discrepancies indicate document problems.¹²

Compare to bank statements. Request a month of bank statements and verify that deposit amounts match net pay figures. Bank statement analysis can confirm whether claimed income actually arrived in the client’s account. Deposits from the purported employer should appear on pay dates.

Verify employer existence. Search the employer name online. Check state Secretary of State databases for business registration. Call the listed employer phone number. Fictitious employers do not survive basic verification.¹³

Use The Work Number. Equifax’s Work Number service provides automated employment and income verification for participating employers. If the employer participates, you can verify employment dates and income through official channels. Many large employers participate.

Request IRS wage transcript. After tax year closes, the IRS provides wage and income transcripts showing W-2 and 1099 information reported to them. Comparing client-provided documents to IRS records reveals discrepancies. The Income Verification Express Service (IVES) allows taxpayers to authorize third-party access to transcripts.

Contact the employer directly. For clients you suspect of fraud, direct employer verification is definitive. Call the HR department and confirm employment status, dates, and income range. Note that the employer name and phone number on a fake paystub may also be fake, so verify contact information independently.

Tax Preparer Liability

Tax preparers face real penalties for filing returns based on fraudulent documentation. Understanding these consequences helps frame the importance of verification.

Due diligence requirements (IRC § 6695(g)). Preparers must meet due diligence requirements for returns claiming EITC, Child Tax Credit, Additional Child Tax Credit, American Opportunity Credit, and Head of Household filing status. The penalty for failing to exercise due diligence is $635 per failure for 2025.¹⁴

Due diligence includes completing Form 8867, verifying documentation, and making reasonable inquiries when information seems incorrect or inconsistent. Filing returns with obviously fake income documentation violates due diligence requirements.

Understatement penalties (IRC § 6694). If a return understates tax liability due to an unreasonable position, the preparer penalty is $1,000 or 50% of the income earned from the return, whichever is greater. If the understatement results from willful or reckless conduct, the penalty increases to $5,000 or 75% of income.¹⁵

Aiding and abetting (IRC § 6701). Preparers who knowingly aid understatement of tax liability face a $1,000 penalty per return ($10,000 for corporate returns).¹⁶

Criminal penalties. In extreme cases involving knowing participation in fraud, preparers can face criminal prosecution under IRC § 7206, with fines up to $100,000 and imprisonment up to three years.¹⁷

Circular 230 obligations. For enrolled agents, CPAs, and attorneys practicing before the IRS, Circular 230 requires due diligence in determining accuracy of client representations. Relying on client documents you should have known were fraudulent can trigger disciplinary proceedings.

The practical risk. Even without intentional fraud, filing returns based on fake documents exposes you to penalties when the IRS examines the return. The standard is whether you exercised reasonable care, not whether you personally knew the documents were fake.

What to Do When You Suspect Fraud

Discovering potentially fraudulent documentation requires careful handling. Here is a practical approach.

Document your observations. Note specifically what triggered your concern: inconsistent fonts, math errors, missing information, or other red flags. Keep records of your analysis in case questions arise later.

Ask clarifying questions. Give the client an opportunity to explain. Sometimes there are legitimate reasons for unusual documents, such as employer payroll system changes or manual corrections. Ask where the documents came from and whether the client has additional documentation.

Request additional verification. Ask for bank statements showing deposits, prior year tax returns, or employer contact information you can verify independently. A client with legitimate income should be able to provide corroborating documentation.

Decline the engagement if necessary. If you cannot verify income and the client cannot provide adequate documentation, you may need to decline to prepare the return. Document your reasoning. The short-term loss of a fee is far smaller than the potential penalties from filing a fraudulent return.

Do not file a return you believe contains fraudulent information. Your obligations as a preparer prohibit filing returns you know or have reason to believe are incorrect. When documentation appears fabricated and verification fails, do not proceed.

Report suspected fraud (optional). Preparers are not generally required to report client fraud to the IRS, but you may choose to do so. Form 3949-A allows reporting of suspected tax fraud. The decision to report involves professional judgment about the severity and certainty of the fraud.

Consult with peers or professional guidance. When situations are unclear, consulting with colleagues or professional organizations like the AICPA can help you determine the appropriate response.

FAQs

How common are fake paystubs in tax preparation?

No reliable statistics exist for tax preparation specifically, but the IRS estimates that 33% of EITC claims contain errors, with half involving misreported income. Rental industry data shows 14% fraud rates on applications requiring income documentation. Fake paystubs are a known and growing problem.

What is the penalty for a tax preparer who files a return with fake income documents?

Penalties range from $635 per failure for due diligence violations (IRC § 6695(g)) to $1,000-$5,000 for understatement penalties (IRC § 6694) to criminal prosecution in cases of knowing fraud. The severity depends on whether the preparer knew or should have known the documents were fraudulent.

Can I verify a paystub by calling the employer?

Yes, but verify the phone number independently rather than using the number listed on the paystub. A fake paystub may include a fake phone number that routes to the fraudster. Look up the employer through official business registrations or directory listings.

What if my client does not know their paystub is fake?

This happens when employers commit payroll fraud or when clients obtain documents through services they do not fully understand. The client’s knowledge does not change your due diligence obligations. If the document appears fraudulent, you must verify or decline to use it regardless of client intent.

Should I report clients who bring fake paystubs?

Reporting is optional. You may file Form 3949-A to report suspected tax fraud, but you are not required to do so in most circumstances. Your primary obligation is to not file a return you know contains false information. Consultation with professional ethics resources may help guide specific situations.

How do fake paystub generators work?

Online services provide templates that accept input for employer name, employee name, pay rate, deductions, and dates. The templates generate professional-looking PDFs with calculated figures. Some charge per document; others offer subscriptions. These services are illegal when used to commit fraud.

What verification does The Work Number provide?

The Work Number is Equifax’s employment verification database. Participating employers report payroll data, allowing verification of employment dates and income. Not all employers participate. When available, it provides authoritative third-party verification that is difficult to fake.

Related guides: Bank Statement Downloads | Check Fraud for Accountants