Return to Tax Industry News
 

Post Date:  8/31/2015
Last Updated:  8/31/2015

Summary
Cross References
- IRS Announcement 2015-22

Consumers, employees, and taxpayers in general can be the victim of identity theft when an organization’s recordkeeping system has been "hacked" or otherwise exposed to identity thieves. In response to such data breaches, organizations often provide credit reporting and monitoring services, identity theft insurance policies, identity restoration services, or other similar services to affected customers, employees, or other individuals whose personal information may have been compromised as a result of the data breach. These identity protection services are intended to prevent and mitigate losses due to identity theft resulting from the data breach.

The IRS has ruled that the value of such identity protection services is not taxable. Consumers and other taxpayers receiving this type of service do not include the value in gross income, and employers providing these services to employees do not include the value in the employee’s gross income as wages. Additionally, the value is not reported on an information return, such as a W-2 or 1099-MISC.

This rule does not apply to cash received in lieu of identity protection services, or to identity protection services received for reasons other than as a result of a data breach, such as identity protection services received in connection with an employee’s compensation benefit package.

Print Version:  Click here for a printable version of this document.