T.D. 9861; Reg. § 1.6052-2, Reg. § 31.6051-1, Reg. § 31.6051-2, Reg. § 31.6051-3, Reg. § 301.6109-4
IRS has issued final regs that amend existing regs to permit employers to voluntarily truncate employees’ social security numbers (SSNs) on, e.g., copies of Forms W-2, Wage and Tax Statement, that are furnished to employees. The final regs do not allow truncated numbers on W-2 forms filed with the Social Security Administration (SSA).
Background—W-2 forms. Code Sec. 6051(a) generally requires that an employer provide to each employee on or before January 31 of the succeeding year a written 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. Employers must use Form W-2 (or a substitute statement that complies with applicable revenue procedures) to provide the information required by Code Sec. 6051(a) to employees. (Reg. § 31.6051-1(a)(1)(i))
Code Sec. 6051(d) provides that, when required to do so by regs, employers must file with IRS duplicates of the forms required to be furnished to employees under Code Sec. 6051. Reg. § 31.6051-2(a) generally requires employers to file Social Security Administration copies of Forms W-2 with SSA.
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 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. This situation may arise, e.g., when an insurance company is making payments to an employee of another employer because the employee is temporarily absent from work due to injury, sickness or disability, and the insurance company has satisfied the necessary requirements to transfer the obligation to do Form W-2 reporting to the employer.
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.
Background—identifying numbers. Code Sec. 6109(a) authorizes IRS to prescribe regs 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.
In 2014, IRS issued final regs (T.D. 9675, “2014 regs”) authorizing the use of truncated taxpayer identification numbers (TTINs) on certain payee statements and certain other documents. The 2014 regs were in response to concerns about the risks of identity theft, including its effect on tax administration. Reg. § 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. § 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. For example, a TTIN replacing an SSN appears in the form XXX-XX-1234 or ***-**-1234.
Reg. § 301.6109-4(b)(2)(ii) prohibits using TTINs if, among other things, a statute, reg, other guidance published in the Internal Revenue Bulletin, form, or instructions specifically requires the use of an SSN. Additionally, Reg. § 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 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. Reg. § 31.6051-1 requires employers to include their employees’ SSNs on copies of Forms W-2 that are furnished to employees.
2017 proposed regs. The PATH Act amended Code Sec. 6051(a)(2) by striking “his social security account number” from the list of information required on Form W-2 and inserting “an identifying number for the employee” instead. Because an SSN is no longer required by Code Sec. 6051, in 2017, IRS issued proposed regs 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. (Preamble to Prop Reg REG-105004-16) See “Proposed regs set out rules for truncated taxpayer identification numbers.”
IRS finalizes regs. IRS has now finalized the regs, with no change to the proposed regs other than a change to the effective date of the regs.
The regs provide that:
- Consistent with the rule in Reg. § 301.6109-4(b)(2)(ii), a payee’s SSN may not be truncated to appear in the form of a TTIN 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 regs 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. (Reg. § 31.6051-3(e)(3))
- An employer is permitted 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. (Reg. § 1.6052-2(a))
- Truncation is not allowed on any return, statement, or other document that is required to be filed with or furnished to SSA under the internal revenue laws. (Reg. § 301.6109-4(b)(2)(iii))
- Truncation is allowed if a statute or IRS guidance (e.g., regs, forms, instructions) that specifically requires the use of a SSN, ITIN, ATIN, or EIN also specifically states that the taxpayer identifying number may be truncated. (Reg. § 301.6109-4(b)(2)(ii)) This provides clarification to the rule prohibiting truncation if a statute, reg, other guidance published in the Internal Revenue Bulletin, form, or instructions, specifically requires use of a SSN, ITIN, ATIN, or EIN.
IRS intends to incorporate the revised regs into forms and instructions. (Preamble to T.D. 9861)
Effective date. The regs apply to returns, statements, and other documents required to be filed or furnished after December 31, 2020, except for Reg §31.6051-2, which applies to statements required to be filed after July 3, 2019. (Reg. § 1.6052-2(d); Reg. § 31.6051-1(k); Reg. § 31.6051-2(d); Reg. § 1.6051-3(f); Reg. § 301.6109-4(c))
References: For truncated taxpayer identification numbers, see FTC 2d/FIN ¶ S-1501A; United States Tax Reporter ¶61,094.