Employer Responsibility for Identity Theft and Taxes

The problem of identity theft has reached epidemic proportions.  It is therefore important to safeguard your and your employee’s social security number, address, date of birth and other crucial information from public view.

In January of each year, W2s, 1099s, K-1s are sent to recipients and most of these documents contain information that can compromise a person’s identity. An identify thief knows these documents will arrive in an envelope marked “important tax document” by January 31.  They lie in wait then swipe the document from your mailbox, file a phony tax return and claim the refund.

According to Scott  Zubrickas, the principal and co-founder of WageFiling.com, “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.”

There is a light at the end of the tunnel Zubrickas states, “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.”

WageFiling.com started out 18 years ago as a form source for W2s, 1099s and other forms used by small business. Today they offer new services, including the truncating of ID numbers to prevent identity theft and comply with the new IRS regulations. Tax pros and small business owners may use the site to prepare 1099-MISC and W2 forms. Data can be imported from QuickBooks and the forms can be electronically filed with the IRS. The recipient copy can be emailed directly to the recipient rather than sent snail mail. Employer copies can be retained as PDF files or you may download and print them. The service works for Mac as well as PC platform.

Zubrickas states, “The IRS tried the truncation a couple of years ago – they allowed businesses or other issuers to use it as an option but hardly anyone used it due to learning curve.”

He adds, “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, 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.”