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Taxpayers who request a copy of their tax transcript from the IRS may soon find out that less is more.
The IRS announced it will begin redacting personally identifiable information (or PII) from 1040s when taxpayers, lenders or third parties request a copy of an individual tax transcript. The intention, the IRS says, is to better protect taxpayer data, as tax transcripts, as the IRS notes, are a “sought-after document” for criminals.
“Controlling access to your personally identifiable information can be critical to reducing your risk of identity theft or tax fraud,” says Credit Karma Trust and Safety Director Dan Petty. “Tax documents can contain a wealth of sensitive information. It’s a good idea to be especially vigilant about your tax information and take control of how much you share and who gets to see it.”
How will this affect you?
Redacting PII on tax transcripts could make it more difficult for fraudsters posing as taxpayers, along with paid tax preparers or third parties saying they need access to client information, to get their hands on your valuable information, even if they do manage to get a copy of your tax transcript.
The IRS will employ a technique you may be familiar with from other information holders — the new tax transcripts will limit the number of characters you’ll see for certain types of PII.
For example, the transcripts will now show only the last four characters of …
- Social Security numbers
- Employer identification numbers
- Account numbers
- Telephone numbers
Only the first four characters will appear for certain fields, including …
- Last name
- Business name
And only the first six characters (including spaces) will be provided for street addresses.
Why does it matter?
You might need a tax transcript for some very important reasons. For example, you may need a tax transcript if …
- You’re completing a Free Application for Federal Student Aid
- You’re applying for a mortgage and your lender has requested your tax information
- You’ve misplaced a previous year’s tax return and need information from that return in order to file the current year’s return
- You want a history of your income
The new transcript format will help minimize the amount of personal information seen by others with whom you share your tax transcript.
What can you do?
“Staying on top of data security can be an important element of financial empowerment,” Petty notes. “Your personally identifiable information is a valuable asset, and you can be your own best line of defense.”
Here are some tips that may reduce your risk of identity theft and tax-related fraud.
- Regularly monitor your financial accounts and be alert for signs of suspicious activity
- Regularly review your credit reports from each of the three major consumer credit bureaus (Equifax, Experian and TransUnion)
- Use strong passwords for online accounts
- Be careful of who you share PII with and how you share it
- File your tax return as soon as you can to reduce the window of time that someone could file a fraudulent return in your name
- If you e-file your taxes, check whether the service you’re using encrypts your information when you fill out your return and when they e-file your return
- If you pay a tax professional to prepare your return, discuss security with them and ask how they’ll protect your information
- Finally, if you’re working with paper tax documents — such as hard copies of W-2s — make sure you don’t leave them exposed (store tax paperwork securely and dispose of unneeded tax documents thoroughly, making sure to check the IRS requirements for how long you must keep certain tax documents)