New IRS rules impact A/P, leave Payroll out

Put your Accounts Payable department on alert:

It’s in for some changes when it comes to its key year-end task: 1099s.

IRS has just released final rules that green light the use of truncated taxpayer ID numbers (TTINs). The motivation: To reduce the risk of identity theft. And they’re effective for this year-end.

Only one problem: TTINS are acceptable on some components of the 1099-MISC process but not others.

And while it’s a smart idea to protect people’s privacy, if your A/P staffers put the shortened numbers on a form that hasn’t cleared by the Taxman, you could end up with them bounced back.

You can imagine how unpopular that would be!

Here’s the lowdown on these new IRS rules, so you can be confident your company is in compliance.

Where it applies, where it doesn’t

Under the final rules, instead of displaying the entire ID number, A/P could use the TTIN, which displays the last four digits with asterisks or Xs in place of the other numbers. So for example:

• XXX-XX-1234, or
• ***-**-1234.

The key: You can only do it on Copy B, which goes to vendors. IRS won’t accept TTIN on any forms that go to the Service.

Nor can you accept a truncated TIN on a W-9 you receive from vendors to verify their tax info. IRS expects you to have the full number in-house, even if you send a truncated version back to them when you 1099 them at the end of the year. So your A/P staffers will have to bounce back any W-9s they receive with a truncated TIN.

Of course, depending on your industry, several forms other could be impacted, from the 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc., to the 1098, Mortgage Interest Statement. You’re able to use TTINs on all of those (payee copies only).

Nothing for Payroll in the new rules

Another finance department gets left out in the cold with IRS’s new rules: Payroll.

Their biggest year-end task – W-2s—will be unaffected by the new rules, even though social security numbers and employer identification numbers both make the list of truncated-TIN-acceptable.

That’s because Payroll’s year-end responsibilities fall under some exceptions:

1. You can’t truncate your own company’s EIN on the W-2s Payroll issues to employees, because the rules specify that companies can’t use TTINs to replace their own ID numbers, and
2. You can’t use TTINs in place of full Social Security numbers on employees’ W-2s , because the form specifies you need an employee’s name and SSN.

So if anyone from your payroll team comes to you with the idea of truncated TINs, make sure they realize that’s out of bounds for them.

Wondering whether it’s worth the effort with all the conditions and exceptions? It likely is. Using a TTIN shows good faith your company is taking steps to protect people’s sensitive information.

Info: To read the final rules, click here.