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W-2 Verification Code Expands


Lee B

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From the recent Security Summit:

"In 2018, a new Verification Code box will appear on all official W-2 forms for the first time. Many taxpayers will see a 16-character code on approximately 66 million Forms W-2 to help authenticate the W-2. Taxpayers preparing their own returns and tax professionals will be urged to enter the code if the box contains the 16-digit number."

1.  I notice the entry of the code is not mandatory. Until it is ???

2.  How will the small businessperson buying their W-2 forms at Staples and preparing them manually ever comply ?

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The box has been required to be on official forms since TY 2016.  I am not aware of the actual specifics, but it is likely something agreed on by the big players, generated by the software, and somehow shared with the SSA so what is on the form can be verified.  It is likely a voluntary item the stakeholders came up with.

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16 minutes ago, cbslee said:

1.  I notice the entry of the code is not mandatory. Until it is ???

2.  How will the small businessperson buying their W-2 forms at Staples and preparing them manually ever comply ?

 

1. You probably already know all of this, but for anyone reading this that doesn't -

  • It was implemented in 2016 on a much smaller scale and expanded to the 50 million level we encountered last year and was still considered in the testing phase.  IRS reported a success rate of about 94%, and a reduction in refunds issued on returns with fraudulent W-2s.
  • Even if the W-2 contained the code, not entering the code didn't stop a return from being processed.  We don't know if the return received extra scrutiny, but I'd say probably not.

 

2. They won't. IRS and the large payroll processing companies collaborated on this, and the verification code is the generated by applying an algorithm provided by the IRS. The resulting code is unique and is based other data contained on that particular W-2.  I suspect that even our tax software that we use to prepare and file W-2s will not be able to generate these codes. 

Logically, the IRS won't be releasing the details of how the algorithm generates the code because that would defeat the purpose if the fraudsters are able to generate valid codes for a fake W-2.  That's in a similar vein to why we practitioners were not told specifically what additional data is being transmitted with returns that we e-file. One was obviously the amount of input time so that IRS could shut down the preparation mills where thieves were generating fraudulent returns in a matter of seconds or a few short minutes.

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