Anti-Fraud Mechanisms by IRS

In our most recent blog, Why Do the Employee and the Employer File W-2 Information Two and A Half Months Apart?, we discussed the time lapse between when employers file W-2 information and when individuals file tax returns.  We focused on the problem when employers file in January and employees file in April, there is plenty of time for identity thieves to file fraudulent returns and claim refunds before legitimate taxpayers can claim their money.

A new pilot program for 2015 was announced on October 1.  This will add a verification code to employees’ copies of the W-2s as a way to deter the filing of fraudulent claims.  The code will be used in conjunction with 1040 returns taxpayers submit via E-file.  The codes would not be sent on paper forms submitted to the SSA.  Unique 16 character alphanumeric codes would be generated for employees with the use of an algorithm provided by the IRS to the payroll processor.  While there will be no new box on Form W-2 during this test phase, the 16 character code will be printed only on the employee’s Copy B and Copy C of the W-2.  While the IRS says that an incorrect or omitted verification code will not interfere with the acceptance or processing of an individual’s return or refund, one expects this will change once the test period concludes and the mechanism is put in place permanently.

The pilot program will be made available to a limited number of select payroll service providers’ clients.

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