In T.D. 9861, the IRS issued final regulations that give employers the option of truncating the Social Security Number (SSN) on copies of Forms W-2, Wage and Tax Statement, that are furnished to employees effective with returns and statements required to be filed and furnished after December 31, 2020. The provision also applies to employee copies of Forms W-2c, Corrected Wage and Tax Statement.

The IRS clarifies that the option of using the truncated taxpayer identification number (TTIN) applies only to Forms W-2 required under IRC  Sections 6051(a) and (f)(2) and  Section  6052(b) and not to other documents, returns or statements that specify the requirement for the SSN. Additionally, the full SSN must appear on copies of Forms W-2/W-2c filed with the Social Security Administration (SSA).

The TTIN is the last four digits of the SSN.

Background

Under the Protecting Americans from Tax Hikes (PATH) Act of 2015 (P.L. 114-113) a number of provisions were included to assist the IRS in curtailing the filing of fraudulent income tax returns by persons who have stolen a taxpayer's SSN. One such measure was giving the IRS authority to allow for the truncation of the SSN on any return, statement or other document that is not required to be furnished to the IRS (or SSA). Another was the provision, now in force, that accelerated to January 31 the due date for filing Forms W-2 with the SSA.

Ernst & Young LLP insights

The IRS did not incorporate the following concerns of commentators received during the proposed rulemaking phase.

1. Inability of employee and employee's tax preparer to verify the accuracy of the SSN on Form W-2. The IRS indicated that the benefit of improved protection from identify theft outweighs the risk of incorrect SSN reporting and the inconvenience of using other means to confirm the accuracy of the SSN reported on the Form W-2.
2. Lender verification of income. Some expressed concern that lenders may reject a Form W-2 with a truncated SSN for income verification purposes. The IRS stated that there were no comments from lenders indicating that this would be an issue and that there are other documents that lenders can use to verify income, such as paystubs.

State and local governments may not allow for truncation of the SSN on the employee copy of the Form W-2. Some commentators expressed concern that state and local governments may require the SSN be provided on the employee copy of the Form W-2, increasing the burden for employers with reporting requirements in multiple jurisdictions. The IRS responded that employers facing burden due to differing state and local rules can opt not to truncate the SSN on all employee Forms W-2 provided.

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