Identity theft has affected many employers over the past several years. The Internal Revenue Service, working with state tax administrators and the tax industry, has sought to fight identity theft through several measures, such as requiring Forms W-2, Wage and Tax Statement, to be filed by Jan. 31 of each year instead of at the end of February or March and placing verification codes on the form.
The IRS is proposing a new measure to help combat identity theft. The agency’s proposed regulations (REG-105004-16, RIN 1545-BN35) would allow employers to use shortened Social Security numbers on Copy C of Form W-2.
Before the passage of the Protecting Americans from Tax Hikes (PATH) Act of 2015, employers were required to include employees’ Social Security numbers on copies of Form W-2 furnished to them. This meant that the full, nine-digit number was entered on the form.
Cybercriminals who trick employers into providing them with their employees’ W-2s through such devices as an email phishing scam are then able to use the Social Security number’s to file fraudulent income tax returns. A Government Accountability Office report found that the IRS paid about $5.2 billion in fraudulent refunds in the 2013 filing season.
The PATH Act removed the requirement that the numbers be included on copies of W-2s given to employees by allowing employers to use an identifying number for employees.
In 2014, the Treasury Department and the IRS published final regulations (TD 9675) authorizing the use of truncated taxpayer identification numbers (TTINs) on certain payee statements. The proposed regulation issued Sept. 18 would allow employers to voluntarily shorten Social Security numbers on copies of Forms W-2 that are given to employees to help prevent identity theft.
A truncated taxpayer identification number would show only the last four numbers, with first five numbers replaced by Xs or asterisks. A TTIN could not be used on returns required to be filed with the IRS or the Social Security Administration, the IRS said.
If the proposed regulations are finalized with no changes, the IRS plans to allow employers to use TTINs on 2018 Forms W-2 required to be filed after Dec. 31, 2018.
The deadline for comments on the proposed regulations is Dec. 18, 2017, the IRS said.
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