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To help protect people from identity theft, the Internal Revenue Service has issued a final rule that will allow employers to shorten Social Security numbers (SSNs) or alternative taxpayer identification numbers (TINs) on Form W-2 wage and tax statements that are distributed to employees, beginning in 2021.
The IRS published the new rule in the Federal Register on July 3. It finalizes a proposed rule issued in September 2017 with no substantive changes.
Under the regulation, SSNs or other TINs can be masked with the first five digits of the nine-digit number replaced with asterisks or XXXs in the following formats:
To ensure that accurate wage information is reported to the IRS and the Social Security Administration (SSA), the rule does not permit truncated TINs on W-2 forms sent to those agencies. The IRS said that instructions to W-2 forms will be updated to reflect these regulations and explained that masking the numbers on employees’ forms is not mandatory.
The IRS already allows employers to use truncated TINs on employees’ Form 1095-C for Affordable Care Act reporting and on certain other tax-related statements distributed to employees.
The IRS delayed the applicability date of the final rule to apply to W-2 forms that are required to be furnished to employees after Dec. 31, 2020, “so employers still have time to decide whether to implement the change,” according to attorneys at Washington, D.C., law firm Covington & Burling. “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 attorneys wrote.
Permitting employers to truncate Social Security numbers on Forms W-2 provided to employees will better protect individuals’ sensitive personal information.
But some fear that the change could hamper accurate reporting to government agencies. Concerns have been raised that employees who already receive masked pay statements will have no means of ensuring that their SSN is entered (and subsequently reported to the SSA and IRS) correctly. According to the SSA website, a SSN correction is a common error and even if an SSN is ‘verified,’ it could still be entered into payroll software incorrectly. The W2 provides a means for the employee to catch that mistake.
The IRS responded that the benefits of allowing employers to protect their employees from identity theft by truncating employees’ SSNs outweighed the risks of unintended consequences, and that many of the potential consequences noted by the commenters could be mitigated by using other methods to verify a taxpayer’s identity and the accuracy of the taxpayers’ information.
Some believe the new rule does not go far enough by making truncated Social Security numbers or other TINs an option rather than a requirement. W-2 forms have been the target of several high-profile breaches, and therefore the IRS should only permit truncated SSNs to protect employees from future breaches according to the Electronic Privacy Information Center in Washington, D.C.
The Social Security Administration (SSA) recently resurrected its practice of issuing Employer Correction Request notices – also known as “no-match letters” – when it receives employee information from an employer that does not match its records. If you find yourself in receipt of such a letter, it is recommended that you take the following seven steps as well as considering consulting your legal counsel.
Step 1: Understand The Letter
The first and perhaps most obvious step is to read the letter carefully and understand what it says. Too often employers rush into action before taking the time to read and understand the no-match letter.
The IRS and Social Security Administration released the 2015 cost-of-living (COLA) adjustments that apply to health flexible spending accounts (FSAs) in Revenue Procedure 2014-61. The new annual limit for health FSAs, including general-purpose and limited-purpose health FSAs, is $2,550 for plan years starting on or after January 1, 2015.
The $2,550 limit is prorated for short plan years (plan years that are shorter than 12 months) and any carry over amount from participants’ previous plan years may be added to the limit. For instance, participants may elect $2,550 for the 2015 plan year and carry over a maximum of $500 from the previous plan year, making their total account value $3,050 for the 2015 plan year. In other words, the $500 carryover does not count against or affect the $2,550 salary reduction limit. Please note that an employer must decide to allow to either offer participants a option of a max $500 carryover OR the 2.5 month extension to use funds. An employer can not offer both options under their plan.
The following is a frequently asked question recently released by CMS regarding the Marketplace and Income Verification for the purpose of advance payment of the premium tax credit and cost sharing reductions.
Q: Will Marketplaces verify the income of consumers as part of the eligibility process for advance payments of the premium tax credit and cost sharing reductions?
A: Yes. The Marketplaces will use data from tax filings and Social Security data to verify household income provided on an application, and in many cases, will also use current wage information that is available electronically. The multi-step process will begin when an applicant applies for insurance affordability programs (such as the advance payments of the premium tax credit and cost sharing reductions) through the Marketplace and affirms or inputs their projected annual household income. The applicant’s inputted projected annual household income is then compared with information available from the IRS and Social Security Administration (SSA). If the data submitted as part of the application process cannot be verified using IRS and SSA data, then the information is compared with wage information from employers provided by Equifax. If Equifax data does not substantiate the inputted information, the Marketplace will request an explanation or additional documentation to substantiate the applicant’s household income.
When documentation is requested, the Affordable Care Act and implementing regulations specify that if an applicant meets all other eligibility requirements, he/she will be provided with eligibility for advance payments of premium tax credit and cost sharing reductions based on the inputted projected annual household income for 90 days (which may be extended based on good faith), provided that the tax filer attests to the Marketplace that he/she understands that any advance payments of the premium tax credit paid on his/her behalf are subject to reconciliation. If documentation is requested and is not provided within the specified timeframe, regulations specify that the Marketplace will base its eligibility determination on IRS and SSA data, unless IRS data is unavailable. In this case, the Marketplace will discontinue any advance payments of the premium tax credit and cost sharing reductions.
Please note that applicants for advance payment of the premium tax credit and cost sharing reductions must attest, under penalty of perjury, that they are not providing false or fraudulent information. In addition to the existing penalties for perjury, the Affordable Care Act applies penalties when an individual fails to provide correct information based on negligence or disregard of program rules, or knowingly and willfully provides false or fraudulent info. Moreover, the IRS has said they will reconcile advance payments of the premium tax credit when consumers file their annual tax returns at the end of the year, and it will recoup overpayments and provide refunds when appropriate, subject to statutory limits.