Tax identity theft is one of the most devastating as well as evasive forms of identity theft. It can go unnoticed until the IRS notifies victims that there is something wrong with their tax return.
What is Tax Identity Theft
Tax identity theft occurs when a person illegally files a tax return under another person’s name in order to claim that person’s tax benefits or return. This type of identity theft is common because many people wait to file their taxes until the end of tax season which provides criminals with an open window to file fraudulent tax returns early in the season. In order for tax identity theft to take place, a person’s social security number is needed. Unfortunately, it can be rather simple to steal a person’s social security number. For instance, a criminal could steal a social security number via online scams, home break-ins, physical purse or wallet theft, phone scams, medical institutions, workplace hacks, etc. Tax identity theft most commonly takes place when a criminal files a tax return using another person’s social security number as well as a fraudulent W-2 form. The combination of the social security number and W-2 form will result in a larger sum of money for the tax return. This ensures that the thief gets the most out of their victim’s return. In 2013, the IRS paid approximately $5.8 billion for fraudulent tax returns. Luckily, the frequency of tax identity theft has dropped as the IRS has taken more aggressive precautions like assigning qualified personnel to focus on fighting tax identity theft.
Why You Should Care About Tax Identity Theft
Tax identity theft is no small crime. Not only can criminals file a fraudulent tax return with a stolen social security number, but they can also commit other identity theft related crimes like misusing a person’s credit card account. Although other identity theft crimes are serious, tax identity theft is one of the most terrifying forms of identity theft because of potential financial loss, significant stress, and overall conflict with the IRS over future tax returns. The IRS does not take the tax process lightly, so if something is wrong with a tax return, whether that be a person’s filing mistake or a case of tax identity theft, they will make sure they get answers.
What to Do if You’re a Victim
You may have your own suspicions, but to know for sure if you are a victim of tax identity theft, you must await a notice sent by the IRS telling you that there is something wrong with your tax return. When you get this notice by mail, there are a few steps that you should take:
- Immediately respond to the IRS notice you received in the mail by calling the number on the notice.
- Print and fill out the official IRS Form 14039 and mail it back to the address posted on the notice. It also may be helpful to include a copy of the notice you received from the IRS.
- If asked by the IRS (via mail), verify your identity online in order for the IRS to prove that you did not file the fraudulent tax return.
- To avoid scams or further conflict, remember that the IRS contacts people strictly by mail, not by phone or email.
Some warning signs of tax identity theft you should be aware of, according to the IRS, include the following:
- More than one tax return was filed under your name and social security number
- The IRS notifies you that you need to pay more tax, you experience a “refund offset”, or you have “had collection actions taken against you for a year you did not file a tax return”
- The IRS approaches you about additional income or wages it seems you received “from an employer for whom you did not work”
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How to Avoid Tax Identity Theft in The Future
Here are a few precautions you can take to prevent becoming a tax identity theft victim in the future:
- Keep your social security card in a safe and secure environment. Do not carry your social security card or number with you and make sure you have your number memorized.
- Be cautious when giving out important information. Avoid giving an institution, business, or individual your social security number, your driver’s license number, your full name, your date of birth, your passport, or your credit card number.
- Buy identity theft protection plan. Although these companies can’t prevent identity theft in full, they can help you find if this crime happen to you fast. Here is a full list of companies preventing identity theft.
- Be aware of IRS scams. The IRS will not contact you via phone or email, rather they only contact through physical mail. If you receive any email or phone call claiming to be the IRS, do not answer or respond. Tax identity theft criminals will strive to obtain your information through these means.
- Secure your personal computers and devices. Make sure you have anti-malware and virus protection software on your computers and unique passwords on all of your devices. Avoid sharing any sensitive information and data on any computer or device.
- Keep updated on the latest data breaches. Your social security number could be in danger if you are a victim of a major data breach like the recent Equifax breach. Knowing about these breaches can get you a head start on securing your data.
- Keep track of tax records in a secure place in your home, like a locked filing cabinet or safe in a non-obvious room in your house.
- Know the warning signs of tax identity theft.
- Know how to report tax identity theft. See instructions listed above and regularly check the IRS website for updated instructions.
The Future of Tax Identity Theft
Although the IRS is improving its ability to stop tax identity theft, tax identity theft continues to be a major issue in the United States. The fact that tax identity theft is incredibly difficult to catch and recover from makes it one of the most worrisome forms of identity theft. However, if you notice the warning signs and follow the steps outlined above to report tax identity theft, you will have a better chance to make a full recovery. Identity theft in general is an issue that plagues millions of people each year. Knowing what precautions to take in order to prevent tax identity theft as well as general identity theft may be your best chance to stay secure in the future.