What to Know About Tax-Related Identity Theft

Key Takeaways

• Tax-related identity theft occurs when someone uses your personal information, such as your Social Security number (SSN), to file a fraudulent tax return and claim your refund.
• If your SSN is exposed, criminals may use it to file taxes before you do, potentially delaying or preventing you from receiving your legitimate refund.
• Victims may receive tax forms, such as 1099s and W-2s, for employers they have never worked for, leading to inflated income and higher taxable income.
• An IRS Identity Protection (IP) PIN is a key tool in preventing tax-related identity theft, helping to secure your tax filings.
• Filing your taxes early reduces the risk of having someone else claim your refund before you.
• If you suspect that you are a victim of tax-related identity theft, reach out to the Identity Theft Resource Center for free, confidential support and guidance.

Tax-related identity theft is a growing problem, and it’s one that can have significant long-term effects on your financial well-being. This type of identity theft occurs when someone uses your personal information, such as your Social Security number (SSN), to file a fraudulent tax return in your name or causes income reporting forms to be issued in your name. This is often done to claim a tax refund that rightfully belongs to you or avoid taxes on income reported under your name. In this blog, we’ll explain how tax-related identity theft works, its consequences, and steps you can take to protect yourself and respond if you become a victim.

How Does Tax-Related Identity Theft Happen?

Your SSN is the key to many of your financial and government records. If a criminal gets access to your SSN, they can use it to file taxes in your name. When this happens, they may claim your refund, leaving you with a delayed or denied return. By the time you file your taxes, you may discover that a return has already been filed in your name, and the IRS has already issued a refund to the thief.

When someone uses your SSN to file taxes, they typically submit the return early in the tax season, often before you’ve had a chance to file. Since the IRS processes returns based on the SSN, it will recognize the first return filed and flag any subsequent returns filed under the same SSN. If you try to file after the thief, the IRS will reject your return, and you’ll be left to deal with the mess of resolving the issue.

This situation can create a significant delay in getting your legitimate refund, sometimes for several months. In some cases, the IRS may even require you to submit additional documentation to prove that you are the rightful filer, which can be a frustrating and time-consuming process.

Impact of Fraudulent Income on Your Tax Return

Victims of tax-related identity theft often discover that their income has been inflated due to the fraudulent filings. If a criminal files a false return in your name, they may also report income from employers you’ve never worked for. This is typically done using fraudulent 1099s or W-2s, which are issued by employers to report income earned during the tax year.

You might receive 1099s or W-2s for work you didn’t do, reflecting income that was never yours. This artificial inflation of income can cause your taxable income to increase, which may lead to higher taxes owed when you file your legitimate return. If you were expecting a refund, the inflated income could prevent you from getting one, or worse, result in you owing the IRS taxes that you don’t actually owe.

It’s important to carefully review all forms, including your 1099s, W-2s, and any other tax-related documents you receive. If you notice any discrepancies or forms for employers you don’t recognize, you should contact the IRS immediately to report the issue.

How Can You Protect Yourself From Tax-Related Identity Theft?

While you cannot entirely eliminate the risk of becoming a victim of tax-related identity theft, there are steps you can take to minimize the chances and make it harder for criminals to access your tax records.

1. Protect Your SSN

Your SSN is the key to your financial identity. Avoid carrying your Social Security card in your wallet, and be cautious when sharing your SSN online or over the phone. You should only share your SSN when absolutely necessary and ensure that the request is legitimate.

If your SSN is compromised, you should contact the IRS and monitor your credit regularly to detect any unusual activity.

2. Use an IRS Identity Protection (IP) PIN

One of the most effective ways to prevent tax-related identity theft is to obtain an IRS Identity Protection (IP) PIN. This PIN is a unique six-digit number that is used to verify your identity when filing your taxes. With an IP PIN, the IRS will only accept your tax return if it contains the correct number. This makes it far more difficult for criminals to file a false return in your name, even if they have access to your SSN.

An IP PIN is especially helpful if your SSN has been exposed or if you have been a victim of identity theft in the past. You can request an IP PIN from the IRS, and it will be issued to you each year. It is important to keep your IP PIN secure and not share it with anyone unless you are filing your taxes.

3. File Early

One of the simplest ways to protect yourself from tax-related identity theft is to file your taxes early. The sooner you file, the less likely a criminal will be able to file a return in your name and claim your refund. Filing early also gives you time to address any issues with your return before the tax deadline.

If you use a tax preparer to help you file your taxes, make sure they are registered with the IRS.

4. Use Secure Websites and Strong Passwords

When filing your taxes online, make sure you use a reputable and secure website. Look for “https” in the URL and a padlock icon next to the web address to ensure the site is encrypted. Avoid public Wi-Fi networks when accessing financial or tax-related websites, as these can be vulnerable to hacking.

Additionally, use strong, unique passwords for all of your online accounts, particularly those related to finances. Consider enabling two-factor authentication (2FA) wherever possible for an extra layer of protection.

What to Do If You Become a Victim of Tax-Related Identity Theft

If you discover that you are a victim of tax-related identity theft, there are several steps you should take immediately:

1. Contact the IRS: Report the fraudulent tax filing to the IRS. You will need to complete IRS Form 14039, the Identity Theft Affidavit, to inform the IRS that someone else has filed a tax return using your SSN.
2. File Your Taxes: File your tax return as soon as possible, even if you are unable to claim your full refund. The IRS will work with you to resolve any discrepancies.
3. Monitor Your Credit: Place a fraud alert on your credit reports with the three major credit bureaus: Equifax, Experian and TransUnion. This may indicate other attempts to misuse your identity.You should also request a credit freeze to prevent anyone from opening new accounts in your name since your SSN has been misused.
4. Get Help from a Professional: If you are overwhelmed by the process, consider seeking help from the ITRC. They offer free, confidential support and guidance on how to navigate the aftermath of identity theft.

Protect Your Taxes

Tax-related identity theft is a serious crime that can cause long-lasting damage to your finances and peace of mind. By taking proactive steps to protect your personal information, using tools like the IRS Identity Protection PIN, and filing early, you can significantly reduce the risk of falling victim to this crime. However, if you do become a victim, quick action and support from organizations like the ITRC are essential to resolving the issue and reclaiming your identity.