HR and payroll professionals nationwide have been, and will continue to be, targeted with e-mails apparently sent by a senior executive but actually sent by scammers who ask for a prompt reply with the 2016 W-2s for all of the organization’s employees. While reliable statistics are not yet available for the current tax season, the IRS revealed in 2016 that it had received more than 1,000 reports of tax-related phishing scams in January 2016 alone and that, in just the first half of last year’s tax season, it had already experienced a 400% year-over-year increase in these scams. In February 2017, the IRS issued an “urgent alert to all employers,” warning that the W-2 phishing scams have “evolved beyond the corporate world and [are] spreading to other sectors, including school districts, tribal organizations and nonprofits.”

Employers should take steps immediately to reduce the risk that HR and payroll professionals, eager to demonstrate their responsiveness to senior management, do not fall prey to these scams.  An organization hooked by a W-2 phishing e-mail can face a long list of damaging effects, including an angry, anxious and distracted workforce; potentially substantial out-of-pocket and imputed costs from complying with mandatory security breach notification laws; and in some instances, class action litigation.  Ironically, a few relatively straightforward changes in procedures, off-the-shelf technology, and some training can largely reduce the risk that an HR or payroll professional will be duped into sending W-2s to criminals who will electronically file false tax returns to obtain a fraudulent tax refund.

Five Steps to Help Prevent W-2 Phishing Scans

Most W-2 phishing e-mails have obvious clues that they did not originate with the senior executive who apparently sent it.  Some contain typographical or grammatical errors that a senior executive almost surely would never make.  For example, one phishing e-mail listed its subject as “RECORDS OF STAFFS.”  Other phishing e-mails have odd punctuation, such as the following message, which used commas rather than periods to separate sentences:  “I want you to send me the list of W2 copy of employees [sic] wage and tax statement for 2016, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.” 

While the name of a senior executive typically will appear in the “From” field of the received e-mail, the reply e-mail address usually is not a corporate e-mail address because the scammer usually does not have access to the apparent sender’s corporate e-mail account.  In a more insidious form of W-2 phishing, the scammer hacks into a senior executive’s corporate e-mail account and uses that account to send the phishing e-mail and to receive the W-2s.  Consequently, the reply e-mail address will not serve as a tip-off to the unsuspecting HR or payroll professional.

Nonetheless, the steps below should help to defeat even the more insidious form of W-2 phishing:

  1. Instruct all senior executives, including the CEO and the CFO, that they are prohibited from requesting that any employee send them a Form W-2 by e-mail unless they make that request by phone or in person.
  2. Inform all HR and payroll professionals authorized to access W-2 forms that all senior executives are prohibited from requesting by e-mail that W-2s be sent to them and that if they receive any such request by e-mail, they are prohibited from responding unless they first call, or meet in person with, the senior executive to confirm that she or he made the request.
  3. Train HR and payroll professionals on the telltale signs of a phishing e-mail, such as a reply e-mail address that is not a corporate e-mail address, obvious typographical or grammatical errors, and unusual punctuation.
  4. HR and payroll professionals should be prohibited from removing from their spam filters any e-mail asking for W-2s.  The spam filter caught the e-mail because it is, in fact, spam.
  5. Consider implementing data loss prevention (DLP) software.  This software can be programmed to block documents containing sensitive information, such as Social Security numbers (SSNs), from being e-mailed outside the corporate network without proper authorization.

How to Respond When Your Organization is Victimized

In many circumstances, the responsible HR or payroll professional will have a “funny feeling” after hitting “send” and will discover shortly thereafter in an embarrassing telephone call with a senior executive, that the executive did not request every employee’s 2016 Form W-2.  On other occasions, the organization will not discover the successful phishing scam until after HR receives a cluster of reports from employees that their electronic tax filing was rejected because someone already had filed tax returns using their SSN.  Regardless of how the organization discovers the incident, mobilizing resources immediately to respond to the incident is critical to protecting the workforce, limiting employee relations issues, meeting legal compliance obligations, and reducing the risk of class action litigation.

Prompt, honest, and informative communication with affected employees is critical.  The organization should notify employees as promptly as feasible after discovering the incident.  The initial communication should generally describe what happened without identifying the employee responsible for the incident and should tell employees what they can do to help themselves and how the employer will be helping them.  In particular, employees should be encouraged to file their tax returns as expeditiously as possible.  Once employees file, the scammers are effectively blocked from filing a fraudulent tax return because the stolen SSN already has been submitted to the IRS.  Employees should also be informed that if their electronic filing is rejected because the scammers previously filed a tax return using their SSN, they will be required to file a hard copy tax return along with the IRS’ Identity Theft Affidavit. The employer should also explain that while these employees will face a delay – the IRS estimates 120 to 180 days — before receiving any tax refund, they will receive the full tax refund for which they are eligible even if the IRS already sent a tax refund to the scammers.  To further assist employees, the initial communication could include a link to the page at the IRS’ web site that addresses tax-related identity theft ( and contact information for the IRS’ Identity Protection Specialized Unit (800-908-4490).

Victimized employers likely will be required to comply with mandatory security breach notification laws.  All of the 47 state security breach notification laws define the SSN as the type of personal information which, if compromised, triggers mandatory breach notification obligations.  While a substantial majority of these laws include a harm threshold that relieves organizations of notification obligations when a security incident does not create a material risk of identity theft or other harm, this threshold typically will be met when an organization falls victim to a W-2 phishing scam and sends SSNs to criminals intent on committing tax-related identity fraud or other crimes. 

The breach notification laws will require notification to affected employees in accordance with the requirements of the laws where affected employee resides.  For “multi-state security breaches,” the notification process can be complicated given the material variations in the 47 notification laws.  In addition, 25 states now require breach notification to the state’s attorney general and/or to other state agencies for either all breaches or for breaches exceeding a threshold number of affected state residents. 

Employers should view the breach notification process not just as a legal compliance exercise but as an opportunity to supplement any earlier communication with employees about the incident.  The breach notification letter provides an opportunity to offer employees identity protection services, such as credit monitoring and fraud resolution services, at no cost to them and to provide each employee with the unique code needed to activate the service.  Offering identity protection services is not legally required, except for California and Connecticut residents whose SSNs were compromised, but the offer can be used to demonstrate the employer’s sincere interest in reducing the risk of forms of identity theft other than tax-related identity fraud that could be perpetrated using affected employees’ SSNs.

Promptly report the incident to the IRS and to law enforcement.  The IRS encourages employers who receive a W-2 phishing e-mail to forward it to and place “W2 Scam” in the subject line.  However, the IRS generally will not be able to prevent the fraudulent filing of tax returns except for residents of the District of Columbia, Florida and Georgia where the IRS is piloting its “PIN Program.”  The IRS provides individuals who enroll in this program with a personal identification number (PIN) that must be used when they file taxes electronically.  Because the scammers will not know the PIN, they will not be able to file fraudulent tax returns using employees’ stolen SSNs.

The FBI’s Internet Crime Complain Center (IC3) permits online reporting of e-mail phishing scams, and many local police departments, particularly in larger cities, have cyber-crime units.  While these agencies likely will not be able to expend resources investigating each individual phishing scam, submitting a report could assist them in obtaining the arrest and prosecution of the scammers. 

Be prepared for on-going communications with employees.  Employees likely will continue to have questions regarding the impact of the incident on them and how the employer will help them after they receive the initial communication and the more detailed security breach notification.  To avoid inconsistent messaging, employers should identify a specific point of contact in all organization-wide communications regarding the incident.  Management-level employees should be instructed to direct all questions about the incident to the designated point of contact.  The contact could be a senior HR executive or a local HR manager, but for incidents involving a large number of employees, it may be necessary to utilize a third-party call center to handle the influx of questions.  Regardless, the contact should be provided with materials, such as a set of Frequently Asked Questions (FAQs), so the contact can be fully prepared to respond to employees’ questions.

Retain knowledgeable counsel to help reduce the risk of administrative enforcement and class action litigation.  A successful response to a W-2 phishing scam is a complex undertaking that must be accomplished under time pressure.  Knowledgeable counsel can help by “quarterbacking” the overall incident response effort, establishing attorney-client privilege for internal communications about the incident, vetting communications with employees and press releases to reduce the risk they contain admission that would be harmful in potential future litigation, and ensuring that all mandatory notifications to affected employees and relevant state agencies are timely made and legally compliant.  If the incident response goes smoothly and demonstrates the employer’s commitment to “take care of its people,” the odds that an angry employee will complain to an administrative agency or seek out class counsel can be dramatically reduced.


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