Final Regs Permit Employers to Use Truncated Taxpayer ID Numbers on Form W-2

(Parker Tax Publishing July 2019)

The IRS issued final regulations under Code Sec. 6051 and Code Sec. 6052 to permit employers to voluntarily truncate employees' social security numbers (SSNs) on copies of Forms W-2 that are furnished to employees so that the truncated SSNs appear in the form of IRS truncated taxpayer identification numbers. The regulations also amend the regulations under Code Sec. 6109 to clarify the application of the truncation rules to Forms W-2 and to add an example illustrating the application of these rules. T.D. 9861.

Background

Code Sec. 6051(a) generally requires that an employer provide to each employee on or before January 31st of the succeeding year a Form W-2, Wage and Tax Statement, (or a substitute statement) that shows the employee's total amount of wages and the total amount deducted and withheld as tax from those wages, along with other information, for each calendar year.

Code Sec. 6051(d) provides that, when required to do so by regulations, employers must file with the IRS duplicate Forms W-2. Reg. Sec. 31.6051-2(a) generally requires employers to file copies of Forms W-2 with the Social Security Administration. A person making a payment of third-party sick pay to an employee of another employer (payee) is required under Code Sec. 6051(f)(1) to furnish a written statement to the employer for whom services are normally rendered containing certain information, including the payee's social security number (SSN). Under certain conditions, the employer for whom services are normally rendered is required under Code Sec. 6051(f)(2) to furnish a Form W-2 to the payee. Employers also must use Form W-2 to file and furnish information regarding payment of wages in the form of group-term life insurance under Code Sec. 6052.

Code Sec. 6109(a) authorizes the IRS to prescribe regulations with respect to the inclusion in returns, statements, or other documents of an identifying number as may be prescribed for securing proper identification of a person. On July 15, 2014, the IRS published final regulations in T.D. 9675 authorizing the use of truncated taxpayer identification numbers (TTINs) on certain payee statements and other documents. The IRS said that these final regulations were in response to concerns about the risks of identity theft, including its effect on tax administration.

Reg. Sec. 301.6109-4(b) generally provides that a TTIN may be used to identify any person on any statement or other document that the internal revenue laws require to be furnished to another person. Under Reg. Sec. 301.6109-4(a), a TTIN is an individual's SSN, IRS individual taxpayer identification number (ITIN), IRS adoption taxpayer identification number (ATIN), or IRS employer identification number (EIN) in which the first five digits of the nine-digit number are replaced with Xs or asterisks. Reg. Sec. 301.6109-4(b)(2)(ii) prohibits using TTINs if, among other things, a statute, regulation, other published guidance, form, or instructions specifically requires the use of an SSN. Additionally, Reg. Sec. 301.6109-4(b)(2)(iii) prohibits the use of TTINs on any return, statement, or other document that is required to be filed with or furnished to the IRS.

Prior to being amended by the Protecting Americans from Tax Hikes (PATH) Act of 2015, Code Sec. 6051(a)(2) specifically required employers to include their employees' SSNs on copies of Forms W-2 that are furnished to employees. In addition, regulations under Reg. Sec.as well as forms and instructions, required employers to include their employees' SSNs on copies of Forms W-2 that are furnished to employees. The PATH Act amended Code Sec. 6051(a)(2) to remove the employee's SSN from the list of information required on Form W-2 and inserted "an identifying number for the employee" instead.

Because an SSN is no longer required by Code Sec. 6051, the IRS issued proposed regulations in REG-105004-16 to permit employers to truncate employees' SSNs to appear in the form of TTINs on copies of Forms W-2 that are furnished to employees. In addition, the proposed regulations contained amendments to the regulations under Code Sec. 6109 to clarify the application of the truncation rules to Forms W-2 and to add an example illustrating the application of these rules. The proposed regulations were proposed to apply to statements required to be filed and furnished after December 21, 2018.

Final Regulations

On July 3, in T.D. 9861, the IRS adopted the proposed regulations without substantive changes to the content of the rules. The final regulations amend Reg. Sec. 31.6051-1 to permit employers to truncate employees' SSNs to appear in the form of a TTIN on copies of Forms W-2 that are furnished to employees under Code Sec. 6051. The final regulations also amend Reg. Sec. 1.6052-2 to permit employers to truncate employees' SSNs to appear in the form of TTINs on copies of Forms W-2 that are furnished to employees under Code Sec. 6052(b) regarding payment of wages in the form of group-term life insurance.

Consistent with the rule in Reg. Sec. 301.6109-4(b)(2)(iii), prohibiting the use of TTINs on any return, statement, or other document that is required to be filed with or furnished to the IRS, the final regulations amend Reg. Sec. 31.6051-2 to clarify that employers may not truncate an employee's SSN on a copy of a Form W-2 that is filed with the Social Security Administration. Consistent with the rule in Reg. Sec. 301.6109-4(b)(2)(ii) that prohibits using TTINs if, among other things, a statute specifically requires the use of an SSN, the final regulations amend Reg. Sec. 31.6051-3 to clarify that a payee's SSN may not be truncated on a statement furnished to the employer of the payee who received sick pay from a third party, because Code Sec. 6051(f)(1)(A)(i) specifically requires such a statement to contain the employee's SSN. Nonetheless, the final regulations permit employers to truncate payees' SSNs to appear in the form of TTINs on copies of Forms W-2 that are furnished under Code Sec. 6051(f)(2) to payees that report such third-party sick pay, in accordance with the general rule governing the reporting of wages to employees on Forms W-2 under Code Sec. 6051(a), because Code Sec. 6051(f)(2) does not specifically require the use of an SSN.

The final regulations amend Reg. Sec. 301.6109-4(b)(2) to clarify that (1) truncation is not allowed on any return, statement, or other document that is required to be filed with or furnished to the Social Security Administration under the internal revenue laws, (2) truncation is not allowed if a statute, regulation, other published guidance, form, or instructions, specifically requires use of a SSN, ITIN, ATIN, or EIN, and (3) truncation is allowed if a statute or IRS guidance that specifically requires use of a SSN, ITIN, ATIN, or EIN, also specifically states that the taxpayer identifying number may be truncated.

Applicability Date

The final regulations changed the applicability date provisions from those provided in the proposed regulations. The final regulations generally apply to returns, statements, and other documents required to be filed or furnished after December 31, 2020, except for Reg. Sec. 31.6052-2 (regarding the payment of wages in the form of group-term life insurance), as amended, which applies as of July 3, 2019.

For a discussion of the rules for filing Form W-2, see Parker Tax ¶252,595.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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