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This article was fact-checked by our editors and reviewed by Christina Taylor, MBA, senior manager of tax operations for Credit Karma Tax®.
Tax identity theft — the filing of fake tax returns using stolen identities — is a form of tax fraud that affects thousands of taxpayers every year.
According to IRS identity theft data, in the first five months of 2017, approximately 107,000 taxpayers were victims of tax identity theft. While that number is lower than 2016’s figures, tax return fraud remains a threat.
Falling victim to tax identity theft can make it difficult to get any refund you’re due, or even cause the IRS to think you owe taxes when you don’t. Nothing can ensure you’re 100% protected from tax identity theft. But you can take steps to reduce your risk of someone filing a fraudulent tax return in your name.
And knowing the signs of tax identity theft could help you catch the problem sooner and take steps to correct it if it does happen to you. Here are some tactics that may help reduce your risk.
1. File your returns as early as possible
As soon as you have all the documents you need for your return, file it. If you procrastinate, an identity thief who already has your personal information can use the extra time to file a fraudulent tax return in your name.
2. Place a credit freeze or fraud alert on your credit file
If you have reason to believe that your personal information might have been compromised, you can put a fraud alert or credit freeze on your credit reports.
A fraud alert:
- Requires creditors to take extra steps to verify your identity before they issue credit.
- Should probably be requested if you lost your Social Security card or other financial or personal information.
- Is free to request and remove.
- Has two options. One, called an initial fraud alert, protects your credit for an initial 90 days. Members of the military can request an active duty alert that lasts for one year. An extended fraud alert lasts seven years. At the end of the alert’s life cycle, it expires automatically. You’ll have to decide if you want to renew it again.
A credit freeze (or security freeze):
- Restricts access to your credit report, making it harder for them to open new accounts in your name. Most businesses will pull your credit before issuing credit. If your credit isn’t available because of a security freeze, then many businesses won’t approve an application to open a new account in your name.
- Usually requires a fee of about $5 to $10. Fees vary depending on where you live. But new federal legislation requires credit-reporting agencies to begin offering consumers free credit freezes no later than September 21, 2018.
- Gives you a PIN or password when you freeze your credit. Protect this PIN or password and keep it confidential. You will need this password or PIN if you want to permanently or temporarily lift the freeze. You may want to temporarily lift the freeze to open a new account, rent an apartment, or know that a potential employer is going to check your credit. Keep in mind, lifting a freeze may have associated fees that vary by credit reporting agency.
To request a fraud alert or credit freeze, contact each of the three national credit reporting agencies directly.
- Equifax: Online or by calling 1-888-766-0008
- Experian: Online or by calling 1-888-397-3742
- TransUnion: Online or by calling 1-800-680-7289
3. Protect your personal identifying information
Scammers trying to steal your identity conduct elaborate tricks. They may try to get you to disclose personal information such as your name and Social Security number over the phone or email. Or they may ask you to download harmful software via email attachments.
Here are some ways to prevent your personal information from leaking into the wrong hands:
- Leave your Social Security card or Individual Taxpayer Identification Number card at home. Carrying it means you could lose it or have it stolen. Protect documents that contain your Social Security number and other forms of personally identifiable information.
- Be skeptical of anyone claiming to be an authority figure who asks you to disclose personal information over email or on the phone, unless you have initiated the contact. The IRS and legitimate companies typically will not initiate contact with you to request this information, although they may need it to verify your identity should you contact them first.
- Protect your personal computers and email accounts with firewalls and anti-virus software.
- Avoid opening email attachments or clicking on links from addresses you’re not familiar with.
How common is tax identity theft?
According to the Federal Trade Commission’s Consumer Sentinel Network, tax-related identity fraud was one of the most commonly reported forms of identity theft in 2016, the most recent year for which data is available. In 2016, stolen personal information was used to commit tax fraud in 29.2 percent of all reported identity theft cases.
4. Be aware of scams
Tax identity thieves employ many tactics to scam people out of the information they need to commit tax fraud.
They may pretend to be an authority figure, such as a government agency or government official, a family member, a company with whom you do business or even charities. Scammers may use new technology to fake a caller ID or web address so that you think the number or email is real.
When the IRS needs to talk to you, they will usually first try to reach you with a letter. The IRS won’t send you an email, text message or social media contact. They will also never demand immediate payment. Signs of a tax scam include:
- Aggressive or urgent demands
- Threats of arrest or other dire consequences
- Demands for immediate payment via cash, wire transfer, credit card or prepaid debit card
5. Choose a tax preparer you trust
It’s probably safe to say most tax preparers want to do right by their customers. However, some people pose as paid tax preparers in order to steal personal information and defraud taxpayers. And it’s important to remember that some online free filing services may not be as effective as others at helping prevent tax fraud.
Before you choose a tax preparer or online tax filing service, do your homework. Be wary of preparers who promise a bigger refund or who charge fees based on the size of your refund — they may take questionable deductions to bump up their fees and leave you holding the bag if the IRS audits you. If you decide your taxes are complicated enough to merit professional help, look for a certified professional, whether that’s an enrolled agent or a certified public accountant. Likewise, if you want to do your taxes yourself, look for free online tax preparation software that clearly explains the steps it takes to protect your information.
For example, Credit Karma Tax® uses 128-bit or higher encryption to protect the transmission of your data to our site and when we e-file your returns. When you log in from a new device, we’ll ask you to verify your identity using your phone. Plus, we must comply with the IRS standards for security, privacy and business operations.
6. Actively monitor your accounts
You may be able to monitor your tax information on the IRS website. You can check to see if someone has filed a tax return in your name and if so, report it. The process of registering to monitor your files, however, can take some time.
You can check your Equifax and TransUnion credit reports whenever you want on Credit Karma. It’s also good to request a free credit report every year at www.annualcreditreport.com in order to see your Experian report. If a credit reporting agency suffers a data breach, it’s a good idea to check whether your personal information was compromised.
Signs of tax identity theft
It’s also important to know the signs that indicate you may have already fallen victim to tax fraud or tax identity theft, including:
- You file a return and the IRS informs you that it already has one in your name and Social Security number. It may even have already issued a refund.
- The IRS notifies you that you owe it additional tax, or need to return part or all of a refund that you never received.
- IRS records show you were paid by an employer you never worked for.
What to do about tax-related identity theft
Despite your best efforts and caution, identity theft can still happen. If you are a victim of identity theft, you can take steps to address the problem:
- Report it immediately to the IRS. Respond immediately to any IRS notice you receive by calling the number included in the official IRS notice. The IRS also provides a hotline for specialized assistance at 1-800-908-4490.
- File a complaint with the Federal Trade Commission at identitytheft.gov.
- Have the three major consumer credit bureaus place a fraud alert on your credit reports.
- Alert your financial institutions and close any fake financial or credit accounts the identity thieves opened in your name, and any accounts you opened that the thieves have tampered with.
To deal with tax identity theft, the IRS recommends you respond immediately to any IRS notice you receive. If the IRS rejects your e-filed return because of a duplicate return filed under your Social Security number, go to IRS.gov and complete the fillable IRS Form 14039. Print the form, attach it to your real complete return and mail it to the IRS.
Protecting yourself from tax identity theft takes time and vigilance. You need to protect your personal information and be wary of scammers. File your tax return as soon as you have all necessary information. Doing so could mean you get your return into the IRS before any identity thieves have a chance to file a fake return in your name and steal your refund or claim a fraudulent refund.
Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.