The IRS has come up with a new idea to help combat identity fraud. For the 2016 filing season, the IRS will test the capability to verify the authenticity of Form W-2 data.
This test is but one way the IRS is trying to combat tax-related identity theft and refund fraud. The objective is to verify Form W-2 data submitted by taxpayers on e-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 provided to employees.
When the taxpayers are preparing their tax returns using tax preparation software, the system will ask them to enter this 16-digit verification code when entering the data from their W-2’s. This code will match up with the information the IRS already has on file.
Keep in mind that entities are required to send a copy of all W-2’s issued to employees to the IRS. The IRS already has a copy of your W-2 on file before you send in your tax return.
This system would help to prevent a situation in which people are preparing their own fraudulent W-2’s, which happens frequently. The illegally prepared W-2’s would not have a verification code on them.
It will also help if someone gains access to your Form W-2 and tries to enter your information into a tax return to steal your income tax refund. Some W-2’s from an entity will have the verification code on them, while others will not.
For the purposes of the test, omitted and incorrect W-2 verification codes will not delay the processing of a tax return. The IRS will analyze this pilot data in a “test and learn” review to see whether it is useful in evaluating the integrity of W-2 information.