Final IRS Regulations Permit Use of Truncated Taxpayer ID Numbers, But Not on Form W-2

Author: Rena Pirsos, XpertHR Legal Editor

August 6, 2014

Final regulations issued by the Internal Revenue Service (IRS) permit the use of a Truncated Taxpayer Identification Number (TTIN) on payee statements and certain other documents instead of a taxpayer's Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), Adoption Taxpayer Identification Number (ATIN) or Employer Identification Number (EIN). The regulations are generally effective for payee statements due after December 31, 2014.

A TTIN displays only the last four digits of an individual's identifying number and is shown in the format XXX-XX-1234 or ***-**-1234. The final regulations affect those who issue or receive any federal tax-related payee statements and other documents required to be provided to payees and other individuals.

For example, a payee may be the recipient of:

  • A payment (e.g., an independent contractor who receives Copy B of Form 1099-MISC, Miscellaneous Income);
  • Pension plan distributions (e.g., Copy B of Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc.); or
  • Qualified tuition payments (e.g., Copy B of Form 1098-T, Tuition Statement).

The final regulations implement two IRS pilot programs conducted in 2009-2010 and 2011-2012 that allowed filers to use TTINs on Forms 1098, 1099 and 5498. The pilot programs were developed to prevent identity theft stemming from including a taxpayer's entire identifying number on payee statements provided on paper or electronically. After the pilots concluded, the IRS issued proposed regulations in 2013 establishing TTINs and providing guidelines for their use. Affected filers were permitted to rely on the proposed regulations before they were published as final.

The final regulations adopt the proposed regulations with certain changes. While the proposed regulations permitted the use of a TTIN only with affirmative IRS authorization, the final regulations permit their use on any federal tax-related payee statement or other document required to be furnished to another person unless:

  • Prohibited by statute, Internal Revenue Code (IRC) regulation or other guidance published in the Internal Revenue Bulletin (IRB), a federal form or instructions; or
  • A statute, regulation or other guidance published in the IRB, a federal form or instructions requires use of an SSN, ITIN, ATIN or EIN.

This change allows for the expanded use of TTINs without the IRS being administratively burdened with tracking every authorized use.

However, because taxpayer identifying numbers must be included in their entirety on returns and statements filed with the IRS so that it may determine compliance and validate the information provided, TTINs may not be used:

  • On returns or statements required to be filed with, or provided to, the IRS; and
  • On any tax form, statement or other document that one individual provides to another.

For example, an employer may not use a TTIN in place of its EIN or an employee's SSN on the payee copy of federal Form W-2, Wage and Tax Statement, that it provides to an employee. The IRC requires Forms W-2 provided to employees to show the name of the employee and the employee's SSN. Similarly, an individual may not use a TTIN in place of his or her TIN on a Form W-9, Request for Taxpayer Identification Number and Certification.

The final regulations also clarify that using a TTIN as the regulations permit will not result in a penalty assessment for failure to include a taxpayer identifying number on a payee statement or other document (e.g., a penalty under IRC § 6722 for failure to timely furnish a correct statement).