Tax Identity Theft: Description, Warning Signs & How To Prevent It

These days most consumers know to beware of “identity theft” crimes in which someone steals your personal information to open a credit card in your name, for example. But did you know that a criminal can steal your tax return by pretending to be you? This particular form of fraud is known as tax identity theft, and it’s more common than you might think.

What Is Tax Identity Theft?

Tax identity theft is when a person steals your personal information and uses it to file a tax return in your name. The criminal intent is to claim your tax refund for themselves. If you’re a victim of tax identity theft, you’ll likely find out when you file your taxes. The IRS will send you a rejection letter because someone has already filed your taxes using your Social Security number (SSN) or Taxpayer Identification Number (TIN).

Another type of tax identity theft occurs when someone uses your Social Security number when applying for a job. Any income that person receives is then reported to the IRS as your income. When you file your tax return and do not report those earnings, you will likely be contacted by the IRS because they believe you failed to report all of your income.

The IRS will mail you a letter explaining that you had earnings that you didn’t report. If you get a letter like this from the IRS, follow the instructions in the letter.

If you haven’t gotten a letter from the IRS but you think someone is using your Social Security number for work, you can review your Social Security work history at socialsecurity.gov/myaccount. If there are months of income listed for a place where you never worked, there is likely an issue.

Signs Of Tax Identity Theft To Watch For

Since a criminal typically acquires your SSN or tax ID without your knowledge, you likely won’t suspect tax identity theft until they have already committed a fraud. Here are some signs that your identity may have been stolen.

• You try to file your taxes but someone’s already filed taxes under your Social Security number.
• The IRS contacts you about a tax return you didn’t submit.
• IRS records show income you received from an employer you never worked for.
• The IRS informs you about an online account created in your name that you didn’t create.
• You’ve been assigned an Employee Identification Number but never requested one.

Risk Factors: How Can Tax Identity Theft Occur?

Like most kinds of identity theft, a fraudulent claim on your tax return begins with a data breach of your personal information. This can happen as a standard theft of your property (such as a stolen piece of mail) or through types of computer crime such as data breaches, phishing scams or Wi-Fi hacking. In most cases, you won’t even know your information has been stolen until an overt fraud occurs.

What To Do If You’re A Victim Of Tax Identity Theft

If you believe you’re a victim of tax identity theft, it’s best to act quickly. Thieves know they’re exposed once they commit a crime, so they might try to use your personal information to commit several frauds right away.

1. Report It To The IRS Or Federal Trade Commission (FTC)

Once you know someone has filed a fraudulent tax return in your name, you should immediately report the crime by filling out IRS Form 14039, Identity Theft Affidavit. You can submit the form by printing it out and attaching it to a paper tax return. You can get a full explanation of your options going forward on the IRS website.

Additionally, you should also immediately report the tax theft to the Federal Trade Commission (FTC) at IdentityTheft.gov. Afterward, an electronic copy of the Identity Theft Affidavit will be sent to the IRS on your behalf.

2. Request A Credit Freeze With The Three Credit Bureaus

If someone has stolen your personal information to commit tax fraud, they may also try to open new credit accounts, such as a credit card, in your name. To reduce the chances of this happening, contact all three credit bureaus – Experian™, Equifax^® and Transunion^® – and request a credit freeze.

A credit freeze restricts access to your credit reports, which most lenders check before issuing you credit. Not only will the lender know to not extend credit to the potential thief, they can also alert authorities and help apprehend them.

3. Check All Your Existing Accounts For Fraudulent Activity

Next, review your bank accounts, credit cards and other financial accounts for suspicious transactions. If you find any, report it to the financial institution. In some cases you’ll be able to recover funds lost to this fraud.

4. Continue To Pay Taxes

Although someone has filed a tax return in your name, you’re still required to file the correct one. You should file a paper tax return and pay any taxes you owe on or before the tax deadline to avoid late fees and interest.

If you are the victim of a fraud and the IRS knows about it, you will eventually get a resolution and recover any lost funds. This might take time, however, and if you don’t file a correct return on time your problems could multiply.

8 Smart Ways To Prevent Tax Identity Theft

Criminals who know how to use your personal information to steal from you are very resourceful. They can use simple methods like going through your trash or use highly technical methods like computer hacking or phishing scams.

To prevent tax identity theft, you have to be very careful in protecting your Social Security number and tax ID. Here are some tips to do just that.

1. Protect Important Documents

Keeping your important documents safe is one of the most important things you can do to protect yourself from identity theft. You can store important documents, such as your Social Security card and birth certificate, in a fireproof safe. And you should shred documents you no longer need that contain personal information.

2. Use Secure Websites With Additional Authentication Measures

Make sure that the tax preparation software that you’re using (such as Turbo Tax or Tax Slayer) has multifactor authentication. Multifactor authentication offers extra security by requiring two or more credentials to log in to your account. One might be your password. The additional credential you need to log in to your account typically falls into two categories: something you have — like a passcode you get via text message or an authentication app, or something you are — like a scan of your fingerprint, your retina, or your face. Multifactor authentication makes it harder for scammers to log in to your accounts if they do get your username and password.

3. File Your Taxes Early

The IRS usually begins accepting tax returns at the end of January, which is around the same time employers are required to send out W-2s. As soon as you receive all the tax documents you need to prepare your taxes, go ahead and file your tax return. The earlier you file, the less time a thief has to file a fraudulent tax return.

4. Choose A Trusted Tax Preparer

If you decide to use a tax preparer to file your tax return, do your research before choosing someone. Choose someone with good reviews and a staying presence, such as a local tax accountant who has been in business for years, rather than someone you don’t know at all, such as an online preparer. You can ask family members and friends for referrals or visit the IRS’s Directory of Federal Tax Return Preparers to find a qualified tax preparer. Taking steps to make sure the tax preparer you use is legitimate can help you protect your personal information.

5. Request An Identity Protection Pin (IP PIN)

Perhaps the surest way to prevent tax identity theft is to get an Identity Protection PIN (IP PIN) directly from the IRS. This is a unique six-digit unique number that the IRS can use to verify your identity, and stops scammers from being able to use your SSN or TIN to file a fraudulent return.

6. Be Aware Of Common Scams

One of the most common ways cyber criminals try to get you to voluntarily provide them with your private information is through a phishing email scam. In a phishing email the sender might pose as a legitimate financial institution or even the IRS itself. It may have “official” looking graphics and urge you to respond by clicking on a link to a website that asks for your information. It might even carry a threat that you’ll suffer financial harm if you don’t do so.

One way to spot a phishing email is to look at the sender’s email address—often it will be from an address that is totally unrelated to the IRS or any other official institution. Any emails that look suspicious probably are, and they should be reported as spam. Most importantly, report all unsolicited emails claiming to be from the IRS or an IRS-related function to phishing@irs.gov .

7. Understand The IRS’ Methods Of Contact

In almost every case, when the IRS wants to speak with you they will initiate the conversation via mail. The letter will have a phone number to which you can respond with further questions. For official business, know that the IRS will never:

• Initiate contact with taxpayers by email, text or social media to request personal or financial information
• Call taxpayers with threats of lawsuits or arrests
• Call, email, or text to request taxpayers’ Identity Protection PINs

8. Know When Risk Of Tax Identity Theft Is Highest

The time to be most on the lookout for tax identity theft is the first months of the year leading up to the mid-April tax return deadline. More specifically, a tax identity thief will likely try to make a claim on your refund very early in the tax season, before you’ve had a chance to file your legitimate return.

Further, if you know you’ve had an information breach, such as a lost or stolen wallet, you should be on heightened alert for all forms of identity theft.

The Bottom Line

While tax identity theft continues to be a problem for Americans, there are effective ways to prevent it and remedies from the IRS if it does happen to you. Perhaps your single best protection is establishing your unique Identity Theft PIN with the IRS — they will not process your return unless you supply this number.

Download the Rocket Money^SM app to keep an eye out for any irregularities across all of your accounts and interests.