Employees Get Identity Protections Tax-Free, IRS Says


Add protection against data theft to the growing list of benefits that employers can offer to their employees on a tax-free basis. And it doesn’t matter whether a breach has occurred or may yet occur, according to recent guidance from the IRS.

Employers can give workers identity protection benefits on a tax-free basis, even if those services are provided prior to a data breach, the Internal Revenue Service said Dec. 30, 2015, in Announcement 2016-2.

That means that employers don’t have to include the value of the protection services in employee income or even report the value to the government and employees aren’t taxed on that value.

This announcement was preceded by Announcement 2015-22, released in August, in which the IRS provided tax relief for identity protection services provided after an identity breach. The IRS said in that document that organizations can provide identity protection services at no cost to customers, employees and others after a data breach, as a way of preventing and mitigating possible identity theft losses.

Meanwhile, federal agencies are stepping up in their efforts to deal with the fallout from data breaches affecting their employees and customers.

In a Dec. 11, 2015, Office of Personnel Management announcement, the agency said it has concluded initial mailings to 93 percent of 21.5 million persons affected by its July 2015 background check data breach.  As a result of the breach, OPM has offered affected persons, including their children under the age of 18 as of July 1, 2015, cost-free credit monitoring and identity theft protection and insurance for a three-year period.

Moreover, in May 2015, after having experienced an identity theft breach in its “Get Transcript” application, the IRS offered to provide identity protection services to approximately 100,000 taxpayers, according to the IRS document, “IRS Statement on the ‘Get Transcript’ Application.”

“The IRS will be working aggressively to protect affected taxpayers and strengthen our protocols even further going forward,” IRS said in the document.

See related articles, IRS Extends Tax Relief to Pre-Breach ID Protection Services and Value of ID Protection for Data Breach Victims Not Taxable.

Design benefit plans and respond quickly and confidently to a range of compliance issues, with a free trial to the Benefits Practice Resource Center.