Per Internal Revenue Service Announcement 2016-02, employers that provide identity-protection services to employees do not have to include the value of the benefit in employees’ wages and gross income.  Additionally, employers do not have to report the amounts on an information return (i.e., W-2 or 1099).  However, the provision does not apply to cash received in lieu of identity-protection services or to proceeds received under an identity-theft insurance policy; the treatment of insurance recoveries is governed by existing law.


In August 2015, the IRS provided some tax relief for identity-protection services provided after a breach and received requests to expand the relief to services provided before a breach to “allow earlier detection of a data breach and minimize the impact of a breach on operations.” Notice of the tax relief was made in Announcement 2015-22.


Where Employers can Find More Details

To learn more about Announcement 2016-02 go to:

To learn more about Announcement 2015-22 go to:


Thank you for choosing Paylocity as your Payroll Tax partner.  Should you have any questions please contact your Paylocity Account Manager.


This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.