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The W-2 Form: New Codes and What You Should Know

Author

Phil Britt

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Author

Phil Britt

More by Phil

The 2016 Form W-2 may raise some eyebrows and elicit some questions from employees because it may include a Verification Number not included in previous versions — an addition made by the Internal Revenue Service (IRS) to try to help prevent identity theft. According to the IRS, the 16-digit Verification Code, found on Form W-2 copies B and C received by employees, is designed to verify the income and tax withholding information reported by employees on their annual income tax returns (e.g., IRS Form 1040), which corresponds to their W-2.

A Pilot Program This Year

Because this is only a limited pilot, only some employees will receive the Verification Code on their Forms W-2, so there is every likelihood that an employee with more than one employer may get a Form W-2 with a Verification Code and one without. However, every employee working for the same employer will either all receive Forms W-2 with a Verification Code, or none of them will have it. The IRS partnered with a limited number of payroll service providers on the pilot. Similarly, tax preparers and electronic tax preparation programs should ask for the Verification Code, but it is possible that some may not.

A Move to Stop Identity Theft

The IRS is undertaking the pilot program in an attempt to detect and prevent identity theft from occurring through filing false returns in an attempt to claim and collect refunds. These criminals often file early in the tax season before a legitimate taxpayer does. This enables them to get away with illicit refunds before the IRS can verify wage and withholding data from employers. The Verification Code could help limit this fraud.

Possible 2017 Launch

If the pilot proves to be successful, the IRS expects to expand implementation of Verification Codes in the future. The IRS isn't the only tax agency attempting to thwart identity theft. The tax agencies of several states will also be implementing some type of verification plan, such as asking taxpayers via mail or online to take an identity confirmation quiz before the state will fully process returns and send any refunds. The states of Indiana and Wisconsin have already posted their plans online, and others are likely to follow.

During the upcoming tax season, work with your HR departments to educate your employees on the updated Form W-2, and let them know that the IRS and state agencies only make official contact with taxpayers via the regular mail, not by phone or email.