7 ways to lower tax identity theft risk when you file

Young woman sitting on floor, working on laptop, thinking of how to reduce tax identity theft risks.Image: Young woman sitting on floor, working on laptop, thinking of how to reduce tax identity theft risks.

In a Nutshell

A lot of sensitive data moves around at tax time. It’s important to take steps to ensure that filing your taxes doesn’t make you vulnerable to tax identity theft. Here’s information that can be at risk, and what you can do to help reduce those risks.
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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.

Identity theft is consistently among the top five most-common complaints to the Taxpayer Advocate Service (a free and independent organization within the IRS that helps taxpayers resolve tax-related issues), according to the IRS.

According to the IRS, identity theft can affect taxes when someone steals personal information and uses it to file a tax return and claim a fraudulent tax refund. And fraudsters don’t take a break for the holidays or to do their own taxes during tax season — the IRS says identity theft tactics like phishing scams are a year-round threat.

Protecting your data during tax season — and throughout the year — can help reduce your risk of tax identity theft. Let’s go over the kind of personal info that can be at risk and what you can do to help reduce the chance of tax fraud.

What information can be at risk?

You share a lot of information about yourself when you file your tax return each year. So if a fraudster gets access to your return, there’s a lot that could be at risk, including the following:

  • Name
  • Social Security number
  • Address
  • Date of birth (for e-filers)
  • Last year’s adjusted gross income, or AGI
  • Phone number
  • W-2 (if you received one)
  • Occupation
  • Retirement income, if applicable
  • Business income and expenses, if applicable
  • Bank account information, if requesting your refund via direct deposit

If identity thieves have access to your information, they could have a jump on filing a convincing fraudulent return in the future. Plus, crooks might use stolen tax-time data to commit other types of identity theft throughout the year.

How might identity thieves target a tax return?

The IRS says the most common way scammers get identifying data is by posing as someone you’ll likely trust (a bank or tax professional) and asking for your information. And the best way to reduce your risks of falling victim is to be well-informed and vigilant.

Even if you’re diligent about protecting your Social Security number all year long, you can still fall victim to tax identity theft. That’s because a lot of fraudsters are getting more resourceful, some even stealing taxpayers’ information by other means, such as directly from tax preparers.

“During tax season, we see an uptick in IRS impersonation, fake tax preparer sites, infected legitimate sites and hacks targeting accounting firms,” says Jason Glassberg, co-founder of Casaba Security.

The threat of a tax preparer data breach is significant enough for the IRS to implement incident response policies and procedures that tax preparers are required to follow in the wake of a data breach.

Identity thieves can get your information elsewhere, too. As of Nov. 13, 2019, 1,272 data breaches had exposed more than 163 million records, according to the Identity Theft Resource Center. Breached entities include banks and financial companies, businesses, educational institutions, government and military bodies, and healthcare organizations. So even if you’re diligent in trying to protect your tax return, identity theft can still happen.

7 ways to help lower your risk of tax identity theft

In addition to protecting your personal information year-round, here are some things you can do during tax time to lower your risk of fraudsters getting access to tax-related information.

1. File early (or as soon as you can)

Filing as soon as you’re able reduces the window of time in which someone could file a fraudulent return in your name. If a fraudster tries to file a fake return after you’ve already filed, the IRS will reject that fake return — not yours.

But if a fraudster files first in your name, you could get a letter from the IRS alerting you that it has received more than one return for the tax year using your Social Security number. The IRS notice may also say you have a refund offset, owe additional tax or are in collections for a year in which you didn’t file a tax return.

2. Bolster your password security

Nothing else you do really matters if hackers can get access to your return through a weak password. Because hackers can get other passwords you use through various data breaches, never use the same password twice.

It can be tough to remember multiple passwords though, so consider using a password manager.

These services allow you to create and store complex passwords so that you don’t have to remember them every time you log in to your accounts. This may also keep hackers from easily guessing your password.

3. Learn about your tax preparer’s security measures

Because identity thieves potentially can access your personal information through hacking your tax preparer’s records, you’ll want to make sure that your information is safely encrypted. Whether you use a free online tax preparation service or pay a tax preparer to do your taxes, it pays to know what kind of security is protecting your tax data.

4. Make sure your internet connection is secure

If you’re using a secure, encrypted online service but your internet connection isn’t secure, identity thieves might still be able steal your information as you enter it.

Glassberg recommends making sure your Wi-Fi connection is secure before sending sensitive personal data. For example, avoid doing your taxes on a public Wi-Fi network, and password protect your home Wi-Fi.

5. Use security software on your computer and mobile devices

It can be easy to pick up a virus or other type of malware as you browse the internet. Some types of malware, called spyware, can monitor your online activity and may be able to gather information as you enter it.

To try to prevent this from happening while you’re filing your taxes online, it’s a good idea to maintain device security — install security software and scan frequently to ensure your device isn’t infected. And when you think about all the financial information that may be stored on or accessed through your computer or smartphone, device security should be a year-round concern.

6. Protect your paper copies

Whether you e-file or file a paper return, you may receive some tax forms via hard copy, maybe directly from your employer or in the mail, to help you prepare your tax return. You might even decide to print out your finished return to save a copy for yourself. If you’re working with paper tax documents, make sure you don’t leave them exposed. For example, avoid leaving tax forms on your desk at work or in your car.

Dispose of unneeded tax documents thoroughly, such as with a cross-cut shredder to make the shredded pieces more difficult to reassemble. And before you discard anything tax-related, be sure to check the IRS requirements for how long you must keep certain tax documents.

7. Be alert to IRS identity theft scams

The IRS says more than 90% of all data thefts begin with a phishing email in which scammers pose as someone you may trust — like a financial institution, retailer or a tax professional — to trick you out of sensitive information.

Signs an email may be a scam include:

  • Urgency — The email claims there’s a problem with your account or an order that you must address immediately.
  • Links or attachments — There may be an embedded link for you to open or an attachment to download.

Also, the fact that someone claiming to be from the IRS is initiating contact electronically should alert you to the likelihood of a scam. The IRS never initiates contact through an email, text message or social media channels.

Here are some other things the IRS won’t do, that could tip you off to a possible tax scam.

  • Demand in a letter that you make payment to anyone other than the United States Treasury. If you get a letter demanding payment, you can go to IRS.gov and check your IRS account balance online to see if you really do owe anything.
  • Call you and threaten to sue you or send you to jail if you don’t pay immediately.
  • Ask you to pay using a gift card or debit card.
  • Send you a link to pay through a tweet or other social media contact.

Bottom line

Tax season can be a busy time, but it’s important to maintain good data security practices while preparing and filing your taxes. While it’s impossible to eliminate the risk of tax identity theft altogether, you can take steps to reduce your chances of becoming a victim.

The extra time and effort it takes to protect your personal information could be well worth it. The IRS says it generally takes about 120 days to resolve tax identity theft cases, but complex ones may take 180 days or longer. So do what you can to lower your tax identity theft risk when you file. And if you suspect you’ve been a victim of tax-related identity theft, visit the IRS guide to learn your next steps.

Christina Taylor is senior manager of tax operations for Credit Karma. 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.

About the author: Ben Luthi is a personal finance freelance writer and credit cards expert. He holds a bachelor’s degree in business management and finance from Brigham Young University. In addition to Credit Karma, you can find his wo… Read more.