IRS: Data Protection Services Not Taxable Income

The IRS has expanded on its tax treatment related to employers providing services to employees that protect against data breaches and identity theft.

Employers can provide such services to their employees without increasing their federal income taxes, and employees can receive the services without incurring additional tax liability.

Cash given and received in lieu of identify protection services, or proceeds received under an identity theft insurance policy, are taxable.

The specific clarification from the IRS expands the tax treatment to include services provided before a breach. Language related to the taxability of services provided post-breach was already in place.

Source: Employee Benefit News S