Don't Mess With Taxes

It seems a bit too little, too late, but the Internal Revenue Service is continuing its efforts to make it harder for identity thieves to get their hands on our tax documents.

The IRS this week (Sept. 20) published a notice on its proposed regulations that would allow issuers of W-2 forms to truncate the recipients' Social Security numbers. The idea is that even if criminals get their hands on the earnings statements, they would be of less use since they wouldn't have workers' full tax identification numbers.

Unfortunately for the IRS and the rest of us, the tax agency's announcement came just days after credit bureau Equifax revealed a hack of its database exposed personal information — including Social Security numbers — of 143 million of us.

Still, kudos to the IRS for doing what it can under the restrictions it faces.

IRS finally given go-head: Many in the tax, payroll and accounting worlds have for years been calling for abbreviated Social Security numbers (SSNs) on all types of personal documents.

The IRS, however, only relatively recently was given the authority to act on personal identifiers shown on W-2s.

Among the provisions in the Protecting Americans from Tax Hikes, or PATH, Act that became law on Dec. 18, 2015, were law changes to help the IRS fight the filing of fraudulent income tax returns by crooks who've stolen taxpayers' Social Security numbers.

The change one that got the most attention was the requirement that employers deliver copies of W-2 forms (and some 1099 forms send to independent contractors) to the Social Security Administration (SSA) by the same time they send them to workers. That's Jan. 31.

Previously, the deadline for the SSA, whose data the IRS checks when matching information on tax payment docs with that entered by individuals on their 1040s, was the end of February. Now the IRS can more quickly confirm that the entries on returns are correct and/or legit.

The truncated Social Security numbers, also referred to as truncated tax identification numbers or TTINs, will add another layer of security to the tax filing system.

How shorter SSNs will work: Here's an overview of what the proposed SSN display regs would, and wouldn't, do.

Truncated Social Security numbers would be used on W-2 forms that are provided to employees. The shortened government identification numbers also would appear on forms and instructions.

Employers also could shorten SSNs on W-2s sent to employees reporting taxable group-term life insurance.

Employees' Social Security numbers, however, would NOT be truncated on the W-2 copies filed with the Social Security Administration. I get this. That's the repository of all our earnings information throughout our lives and it needs to get that data accurately recorded. Shorter Social Security numbers could lead to errors.

Similarly, the proposed regs say that a worker's Social Security number must appear in full on a statement provided by insurance companies to employers detailing the amount of sick pay any payee got from a third party.

However, employers may truncate payees' Social Security numbers on the W-2s reporting that third-party sick pay that is provided to the recipients.

Basically, the entities that keeps track of pay for official business and tax reasons must get the full Social Security number data. But in sending us W-2 forms letting us know our earnings and other pay-related info, employers can truncate our tax ID numbers.

Hey, every little bit helps.

Tell the IRS what you think: The IRS wants to know what you think about its plans to in many cases truncate Social Security numbers on tax reporting docs.

Send your comments on the proposed regulations can be send to:

CC:PA:LPD:PR (REG-105004-16), Room 5203
Internal Revenue Service
P.O. Box 7604, Ben Franklin Station
Washington, D.C. 20044

If you're in the D.C. area, you can hand-deliver your comments between the hours of 8 a.m. and 4 p.m. to:

CC:PA:LPD:PR (REG-105004-16), Courier's Desk
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C.

And, of course, you can go electronic and send your thoughts via the Federal eRulemaking Portal at www.regulations.gov.

Truncation timing: The IRS wants these proposed regulations to apply to W-2s that must go to employees in 2019.

That's right. It's going to take more than a year for this Social Security number security feature to take effect.

The main reason is that government processes take a long time. Note the truncated Social Security number regs coming almost two years after PATH granted the IRS authority to make the changes.

Then the IRS must assess the comments it will get by mid-December. It will take a while for the agency to determine what, if any, changes it wants to make to the final truncated Social Security number regs.

That won't be possible by the arrival, in just about three months, of the 2018 tax filing season.

Again, it's a bit frustrating that an effort to reduce tax identity theft takes so long. But again, good for the IRS for taking the time-consuming steps to do what it can as quickly as it can.

You also might find these items of interest:

• New on more W-2 forms in 2017: a verification code
• 'Trusted' taxpayers to get more ID theft protection
• 2-step authentication system on the way for access to more IRS online services