Yesterday, the IRS released final regulations that aim to prevent identity theft by permitting, but not requiring, employers to truncate the taxpayer identification numbers (TINs) on copies of Forms W-2 and Forms W-2c furnished to employees. The regulations finalize proposed rules issued in 2017. Generally, this rule applies to Forms W-2 required to be filed or furnished after December 31, 2020, so employers still have time to decide whether to implement the change. The delayed effective date is intended to allow states and local governments time to update their rules to permit the use of truncated TINs, if they do not already do so.
The TIN for most individuals (and all employees whose income is required to be reported on Form W-2) is his or her social security number (SSN); therefore, instead of including an individual’s full nine-digit SSN, the final rule permits employers to truncate this sensitive personal identifying information. In place of the full SSN, employers may use a truncated TIN, which is in the format of XXX-XX-#### or ***-**-#### with the #’s replaced by the final four digits of the employee’s social security number. Full TINs are still required on copies of Form W-2 filed with the Social Security Administration, however. In addition, payers of third-party sick pay must include full TINs on statements to employers of employees to whom the third-party paid sick pay. However, truncated TINs may be used on Forms W-2 that report third-party sick pay issued by employers to employees.