The IRS recently announced that it will now allow truncated tax identification numbers (TTINs) on most payee statements, including the Wage and Tax Statement form (W2.) This new ruling is the latest in a series of measures that the IRS has taken in order to reduce identity theft, including the introduction of TTIN’s on many payee statements in the 1099 series in 2014.
Originally proposed in September 2017, the finalization of the new regulation will allow TTIN’s to be presented with the first 5 digits represented as X’s or asterisks. TTINs may therefore be notated as either XXX-XX-1234 or *--1234 on the aforementioned forms.
This may be done (or not done) at the discretion of the employer. The flexibility of the final regulation allows employers with employees in multiple states to opt out of truncating employees’ numbers if doing so would be burdensome due to state government rules.
There are several exceptions to this regulation. In order to assure that the IRS still receives accurate wage reports, the truncated tax identification number may not be used on forms being sent to the IRS or Social Security Administration. A full TIN is also still required on forms involving third-party sick payment. In addition, this ruling is only applicable on Federal forms. However, individual states may adopt similar policies in the coming years, provided the implementation goes well.
According to Journal of Accountancy, the general reception of this alteration of the Internal Revenue Code has been extremely positive, with many people content for the rules to be adopted without further changes. Some have pointed out that it may be difficult for employees to verify the accuracy of their Social Security numbers on their payee forms under the new rule, but the general consensus seems to be that the benefits of the truncated numbers for personal security outweigh its challenges.
The new TTIN ruling will become effective on December 31, 2020 in order to give states the time needed to make changes in their systems that will support processing forms with truncated numbers.