New W-2 Verification Codes

The IRS is putting a new verification code on Copies B & C of some payroll firms’ W-2 forms in order to test its capability to verify the authenticity of Form W-2 data. Copy B is ‘‘To be filed with employee’s federal tax return’’ and Copy C is ‘‘For employee’s records.’’ The test is one in a series of steps the IRS is taking to combat tax-related identity theft and refund fraud [IRS website, IRS Tests W-2 Verification Code for Filing Season 2016, 11/10/15]. The objective is to verify Form W-2 data submitted by taxpayers on electronically-filed individual tax returns.

The IRS has partnered with certain payroll service providers (PSPs) to include a 16-digit code and a new verification code field on a limited number of Form W-2 copies B & C provided to employees. The code will be displayed in four groups of four alphanumeric characters, separated by hyphens (for example: XXXX-XXXX-XXXX-XXXX). The verification code will appear in a separately labeled box. The W-2 form will include the following instructions to taxpayer and tax preparers: Verification Code. If this field is populated, enter this code when it is requested by your tax return preparation software. It is possible your software or preparer will not request the code. The code is not entered on paper-filed returns.

Some employees will receive W-2 forms that have a ‘‘Verification Code’’ box which is blank. These taxpayers do not need to enter any code data into the tax software product that they use to file their personal income tax return. For purposes of the test, omitted and incorrect W-2 verification codes will not delay the processing of a personal income tax return or the issuance of a refund.

The IRS will analyze this pilot data in a ‘‘test-and-learn’’ review to see if it is useful in evaluating the integrity of W-2 information.

The code will not be included in W-2 forms or W-2 data submitted by the PSPs to the Social Security Administration, or any state or local departments of revenue. Nor will this pilot program affect state and local income tax returns or paper federal returns. On the October 1 payroll industry conference call, Scott Mezistrano, IRS Industry Stakeholder Engagement and Strategy, said that only a small number of PSPs are currently participating in the program. He also said that a new field could be added to W-2 forms, beginning with 2017 forms, if the pilot program is successful.

No new box added to wage, tax statement during test

The W-2 would not include a new box during the pilot, Mezistrano said. The information would be added by the service provider on the substitute forms that are distributed to the employer and employees. Service providers were encouraged to include information about the code in instructions to employees on the reverse side of the W-2.

An omitted verification or incorrect verification code would not delay the acceptance or the processing of a return by the IRS or the issuing of a refund during the pilot, Mezistrano said. Codes would not appear on W-2s that are sent to the Social Security Administration or to any state or local revenue departments, he said. The verification program is part of ongoing antifraud efforts taken by the IRS. In August, the agency said that it would allow only one 30-day, nonautomatic extension of time for filing Forms W-2 instead of the automatic extensions available now.

 In temporary and final regulations, the IRS said identity thieves and unscrupulous preparers often file electronically early in the filing season, leaving the agency unable to verify wage and other information from the W-2 providers until much later.

The new rules are to apply starting in the 2017 filing season, leaving the automatic extension available in 2016.

Citation:

Bloomberg BNA

IRS