New IRS Ruling: Companies Issuing W-2/1099-MISC Forms Can Be Liable for Damages if Identity Theft Occurs To Recipient.

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Millions of Americans get their identity stolen from W-2/1099-MISC copies that are mailed from their employer. A new IRS Regulation called SSN Masking, can protect the recipient and help the company issuing avoid liability when using

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Protect your company from liability and your employees from Identity Theft this tax season

A ruling recently released by the US Department of the Treasury now allows for identity protection measures called “Truncated Taxpayer Identification Numbers”, also known as “SSN Masking”, to be applied to all recipient tax return copies, including 1099-MISC and W-2 forms.

The IRS-approved SSN Masking places an “X” over the first five numbers of the recipient’s social security number (SSN) or employer identification number (EIN), making this data secure from identity thieves. While this service was allowed by the IRS for 1099-MISC tax form filing before, it may now be applied to W-2 forms, and may be used to truncate EINs as well as SSNs.

Utilizing this service has the potential to mitigate the rising problem of stolen ID tax refund fraud. Each year, over 10 million Americans are made vulnerable to identity theft through the mail during tax season. Nearly 3 million Americans have been scammed, costing the US Treasury over $5.2 billion.

Because tax form recipient copies are required to be mailed in envelopes marked “Official Tax Document Enclosed”, mailed copies of W-2 and 1099-MISC forms are an easy target to identity thieves. It’s the perfect way for identity thieves to quickly steal their victims’ most vulnerable information.

Scam artists use the recipient’s SSN or EIN, as well as their name and address, to perform tax refund fraud. Using the info stolen from mailed 1099-MISC and W-2 recipient copies, thieves file fake tax returns before recipients can, then have refunds deposited on prepaid debit cards, from which they can withdraw the cash anonymously.

When recipients file their real tax returns later, they are faced with what 60 Minutes referred to in a recent segment as “paperwork hell”. The process of proving their real identities and correcting the fraudulent return can take weeks of meetings and red tape.

Not only does this pose a risk to employees and contractors; it also raises a huge liability for businesses and employers. Because the IRS has made tax ID protection available for both 1099-MISC and W-2 form filing for 2014, if SSN Masking is not used, and recipient tax form copies are stolen from the mail, the employer who mailed them may be held liable for damages.

SSN Masking also allows employers to email secure recipient copies, rather than mailing them, adding an extra layer of security. In order to abide by official IRS regulations when emailing recipient copies as PDFs, employers must: 1) opt in to SSN Masking, 2) password protect and encrypt the document, and 3) receive either pre-approval to email the document, or confirmation of the document’s receipt.

Employers can take advantage of SSN Masking when filing tax returns online through IRS approved e-filing providers who offer this service. Notably, not all online tax filing service providers make SSN Masking available. WageFiling is one such service, which offers SSN Masking for both 1099-MISC and W-2 forms.

The new ruling was made effective as of July 15th of this year.

About WageFiling
An IRS Quality Supplier since 1996, is a simple, cost-effective service which allows small businesses to quickly prepare and e-file 1099-MISC and W-2 forms online. Backed by bilingual English-Spanish customer service and industry leading e-filing software, the WageFiling team prides themselves on taking the stress out of wage tax filing.

Scott Zubrickas

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Scott Zubrickas

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