The Internal Revenue Service, state tax agencies and the tax industry urges all employers to educate their payroll personnel about a Form W-2 phishing scam that made victims of hundreds of organizations and thousands of employees last year.

The Form W-2 scam has emerged as one of the most dangerous phishing emails in the tax community. During the last two tax seasons, cybercriminals tricked payroll personnel or people with access to payroll information into disclosing sensitive information for entire workforces. The scam affected all types of employers, from small and large businesses to public schools and universities, hospitals, tribal governments and charities.

Reports to phishing@irs.gov from victims and nonvictims about this scam jumped to approximately 900 in 2017, compared to slightly over 100 in 2016. Last year, more than 200 employers were victimized, which translated into hundreds of thousands of employees who had their identities compromised.

The IRS and its partners in the Security Summit effort hope to limit the success of this scam in 2018 by alerting employers immediately. The IRS can take steps to protect employees, but only if the agency is notified immediately by employers about the theft. Last year, the IRS created a new process by which employers should report these scams.

How the scam works

• Cybercriminals do their homework, identifying chief operating officers, school executives or others in positions of authority.
• Using a technique known as business email compromise (BEC) or business email spoofing (BES), fraudsters posing as executives send emails to payroll personnel requesting copies of Forms W-2 for all employees.
• The Form W-2 contains the employee’s name, address, Social Security number, income and withholdings. Criminals use that information to file fraudulent tax returns, or they post it for sale on the Dark Net.
• The initial email may be a friendly, “hi, are you working today” exchange before the fraudster asks for all Form W-2 information. In several reported cases, after the fraudsters acquired the workforce information, they immediately followed that up with a request for a wire transfer.

Best Practices for Employers 

To prevent falling victim of the Form W-2 Scam, employers can:

• Train payroll or finance personnel employees to recognize and report security threats.
• Create a policy to limit the number of employees who have authority to handle Form W-2 requests.
• Require additional verification procedures to validate actual requests before emailing sensitive data such as employee Form W-2s.

If the business or organization victimized by these attacks notifies the IRS, the IRS can take steps to help prevent employees from being victims of tax-related identity theft.

How to notify the IRS if you are a victim

The IRS established a special email notification address specifically for employers to report Form W-2 data thefts. Here’s how Form W-2 scam victims can notify the IRS:

• Email dataloss@irs.gov to notify the IRS of a Form W-2 data loss and provide contact information, as listed below.
• In the subject line, type “W2 Data Loss” so that the email can be routed properly. Do not attach any employee personally identifiable information data.

Include the following:

• Business name
• Business employer identification number (EIN) associated with the data loss
• Contact name
• Contact phone number
• Summary of how the data loss occurred
• Volume of employees impacted

Businesses and organizations that fall victim to the scam and/or organizations that only receive a suspect email but do not fall victim to the scam should send the full email headers to phishing@irs.gov and use “W2 Scam” in the subject line.

Be aware that cybercriminals’ scams are constantly evolving. Employers should be alert to any unusual requests for employee data.