Identity theft has become too common a problem, with 12.7 million cases in the US in just 2014. That means that every two seconds, there is a new victim, according to a recent study by Javelin Strategy and Research. With large scale hacks continually making the news, including against retailers such as Target and government agencies such as OPM and the IRS, everyone is at risk of an attack that could lead to thousands of dollars in damages and years of working to get their credit back to normal.
The Rise of Complementary Services
To help protect customers and employees, and save some face after an attack, many businesses and organizations are offering complementary identity theft protection services that include identity and credit monitoring and help to repair any damage. For example, the federal government is planning to spend $133 million to help the victims of the OPM hack. These may be very nice services, but someone somewhere has to pay for them. In fact, in 2010 the money spent on these services totaled $3.5 billion, and there is a significant chance the total has increased in the past five years.
What Does this Have to do with Income Tax?
Complementary services such as this falls into a gray area come tax time. Because they are services of value, it was questionable whether or not these services should be included in a person’s gross income for filing income tax. These services could end up being the equivalent of a few hundred dollars or even more, since many companies charge upwards of $30 a month per client. For some people, adding the value of the services to their gross income may not make much a difference, but for others it could largely affect their final tax bill.
The IRS Takes a Stand
To the benefit of the individual victims of a gross hack, the IRS has declared that these types of complementary identity theft services are not taxable, according to Forbes. The recently released Announcement 2015-22 of the Internal Revenue Bulletin states that if a person is a victim of a data breech and the company or organization of the hack provides ID theft protection services to the person, these services are not taxable. The same goes to employees of a company that offers these services after a potential hack or data breech. This resolution only deals with services provided after a data or security breach, rather than just routine services.
This means that if you are a victim of a hack or data breach and the company or organization offers you complimentary identity theft services, you do not have to worry about including it on any of your tax forms, such as a W-2 or 1099. Because it does not count towards your gross income and is thereby not taxable, it remains a completely free service for you.