The IRS recently issued final regulations that permit employers to voluntarily truncate employee Social Security Numbers (SSNs) on copies of Forms W-2 furnished to employees. The purpose of the regs is to aid employers’ efforts in protecting workers from identity theft.
Proposals and comments
On September 20, 2017, the IRS issued proposed regs on the truncation concept. A truncated taxpayer identification number (TTIN) displays only the last four digits of a taxpayer identifying number and uses asterisks or “Xs” for the first five digits.
Seventeen comments were submitted on the notice of proposed rulemaking and many recommended adopting the rules. Some disagreed and noted concerns of employees not being able to verify whether the SSN filed with the Social Security Administration and IRS is correct. Other comments indicated concerns that it would be more difficult for tax return preparers to verify the employee has provided the correct SSN.
But the IRS and U.S. Department of the Treasury determined that the benefit of allowing truncation outweighs the risk that unintended consequences could occur. Moreover, the agencies believed problems could be mitigated. For example, tax return preparers can use Forms W-2 containing truncated SSNs to verify employee information by using the last four digits of the SSN and the employee’s name and address.
Another objection noted an increased administrative burden on employers with employees who work in multiple states because the employer will have to determine the requirements for each state. (Some state and local governments may not allow truncation.) This, too, was rejected by the IRS and Department of the Treasury. The agencies explained that the rules accommodate potential burdens on employers by making truncation optional.
It was also suggested that a better way to protect employees’ identities is to require employers to furnish the employee copy of Form W-2 electronically. But this was outside the scope of the rule and, under existing rules, employers are permitted to furnish Form W-2 electronically if the employee consents.
The final regulations amend existing regs to permit employers to voluntarily truncate employees’ SSNs on copies of Forms W-2 that are furnished to employees so that the truncated SSNs appear in the form of IRS TTINs. The final regs also:
Amend the regulations under Internal Revenue Code Section 6109 (supplying of identifying numbers) to clarify the application of the truncation rules to Form W-2,
Add an example illustrating the application of these rules, and
Delete obsolete provisions and update cross references in the regs under Sec. 6051 (receipts for employees) and Sec. 6052 (returns regarding payment of wages in the form of group term life insurance).
The final regulations took effect on the date of publication in the Federal Register: July 3, 2019.
Employers play an important role in the fight against identity theft. Consider whether truncation of employees’ SSNs on W-2s is a feasible step for you. Contact us for further information and assistance.