Identity Theft Protection is Now a Non-Taxable Benefit

ID NotifyTax season is just around the corner, and whether you’re a business or an individual, you’ll want to know if you’re eligible for any tax benefits. Thanks to a recent announcement from the Internal Revenue Service (IRS), identity theft protection will now be considered a non-taxable benefit – a nod to the rising importance of the service for all consumers in today’s security landscape.

The IRS will treat identity theft protection as a non-taxable, non-reportable benefit—for any employee or company, regardless of whether they’ve experienced a data breach, or whether the identity theft protection is provided by an employer to employees or by a business to its customers.

Previously, only employees or customers who were in the aftermath of a data breach could treat identity theft monitoring as a non-taxable event. But after that announcement just four months ago, several businesses suggested a data breach was not a remote risk, but rather, “inevitable.”

What does this mean for companies? They can now deduct any cost of offering identity theft protection to their employees or customers. The IRS defines identity theft protection services as:

  • Credit report and monitoring services
  • Identity theft insurance policies
  • Identity restoration services
  • Other similar services

It’s important to note that these don’t need to be reported on either W-2 or 1099-MISC forms. However, this new policy won’t apply to cash given to employees or customers in place of identity protection services.

Perhaps the change in defining what qualifies was spurred by the IRS’s need to provide identity theft protection last summer, as its online database of past-filed returns and other documents was hacked. That breach affected over 300,000 individuals.

Whatever the reason, the announcement means this is a perfect time to sign up for identity theft monitoring services. You can do so through an employer or directly with a retailer, like IDnotify. Particularly for individuals, the ability to receive tax benefits while knowing your personally identifiable information is safe and secure is a great feeling. For existing subscribers, upgrading to premium services may now be a more viable option.