Proposed regulations would permit employers to use truncated TINs

In an effort to reduce identity theft, the IRS issued proposed regulations that would permit employers to use truncated taxpayer identification numbers (TTINs) on Forms W-2, Wage and Tax Statement, issued to employees (REG-105004-16). Permissible TTINs are Social Security numbers (SSNs) with the first five digits of the nine-digit number replaced with asterisks or XXXs in the following formats: ***-**-1234 or XXX-XX-1234.

These new rules are authorized by an amendment to Sec. 6051(a)(2) made by Section 409 of the Protecting Americans From Tax Hikes (PATH) Act, P.L. 114-113, which replaced “the social security account number” of the employee with the “identifying number for the employee” in the list of information required to be on Form W-2. Although the amended statute was effective on the date of enactment, Dec. 18, 2015, the IRS is delaying the effective date of the proposed regulations until Jan. 1, 2019, to allow state tax administrators to prepare for the changes.

To ensure accurate wage information is received by the Social Security Administration, the regulations do not permit TTINs on Forms W-2 that are being sent to that agency or to the IRS. They are also not allowed on Forms W-2 being provided on a statement furnished to the employer of a payee who received sick pay from a third party, because Sec. 6051(f)(1)(A)(i) specifically requires the statement to contain the employee’s SSN.

But TTINs may be used on Forms W-2 being provided by employers to employees that report third-party sick pay because that is permitted by statute. Truncated numbers may also be used for reporting wages paid in the form of group term life insurance.

The IRS has requested comments on the proposed rules by Dec. 18.

In 2014, the IRS issued final regulations (T.D. 9675) that allow the use of TTINs on certain payee statements, such as those associated with forms in the 1099 series, and other documents.