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Tax Identity Theft: How To Protect Yourself

Jerry Brown4-Minute Read
March 21, 2019

When someone steals your personal information, they can file a tax return in your name. Tax scammers file fraudulent returns in hopes of stealing taxpayers’ refunds, and there’s no guaranteed way to stop them. But the good news is that you can take steps to minimize your risks.

We’ll cover how to protect yourself and what to do if you become a victim of tax identity theft.

What Is Tax Identity Theft?

Tax identity theft happens when a person steals your personal information and uses it to file a tax return in your name. There are ways to prevent tax theft from happening and certain steps you can take if you happen to be a victim during tax season or any time throughout the year.

If you’re a victim of tax identity theft, you’ll likely find out when you file your taxes. The IRS will send you a rejection letter because someone has already filed your taxes using your SSN or TIN.

Here are some warning signs of potential tax identity theft you should keep in mind:

  • You receive a tax transcript in the mail you never requested
  • You receive a notice about an unauthorized IRS account
  • IRS records express that you’ve received income from an employer you never worked for
  • You’ve been assigned an Employee Identification Number (EIN) but never requested one

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How Does Tax Identity Theft Occur?

There are several ways someone can steal your personal information. For instance, if you lose your wallet or a piece of mail that contains sensitive information, it can fall into the wrong hands. Or, a company that stores your information online might experience a data breach.

It’s important to note that identity theft can happen throughout the year, but it happens more during tax season.

What To Do If You’re A Victim Of Tax Return Identity Theft

If you’ve become a victim of tax-related identity theft or suspect tax fraud, you should take the following steps.

Report It

Once you know someone has filed a fraudulent tax return in your name, you should immediately report the crime by filling out IRS Form 14039, Identity Theft Affidavit. You can submit the form by printing it out and attaching it to a paper tax return.

Alternatively, you can report the tax theft to the Federal Trade Commission (FTC) at IdentityTheft.gov. Afterward, an electronic copy of the Identity Theft Affidavit will be sent to the IRS on your behalf.

Contact Credit Bureaus And Check Your Financial Accounts

If someone has stolen your personal information to commit tax fraud, they may also try to open new credit accounts in your name. To reduce the chances of this happening, contact all three credit bureaus – Experian™, Equifax® and Transunion® – and request a credit freeze.

A credit freeze restricts access to your credit reports, which most lenders check before issuing you credit.

Next, review your bank accounts, credit cards and other financial accounts for suspicious transactions. If you find any, report it to the financial institution.

Continue To Pay Taxes

Although someone has filed a tax return in your name, you’re still required to file the correct one. You should file a paper tax return and pay any taxes you owe on or before the tax deadline to avoid late fees and interest.

How To Prevent Tax Fraud

Although there’s no foolproof method to protect yourself against tax fraud, there are several steps you can take to lower your risk of becoming a victim.

Protect Documents

Keeping your important documents safe is one of the most important things you can do to protect yourself from identity theft. You can store important documents, such as your Social Security card and birth certificate, in a fireproof safe. And you should shred documents you no longer need that contain personal information.

Use Trustworthy Websites

Using a trustworthy website to file your taxes is another way you can protect your personal information. One way you can do this is to read reviews. Also, make sure there’s a padlock next to the website’s address in your browser’s search bar, indicating it’s a secure site.

You should also make sure the tax software you’re using has multifactor authentication. The IRS requires all tax prep software to offer this extra layer of protection. For instance, when you login, you should be required to enter your username and password and then a unique code sent to your email or phone.

File Taxes Early

The IRS usually begins accepting tax returns at end of January, which is around the same time employers are required to send out W-2s. As soon you receive all the tax documents you need to prepare your taxes, go ahead and file your tax return. The earlier you file, the less time a thief has to file a fraudulent tax return.

Be Careful When Choosing A Tax Preparer

If you decide to use a tax preparer to file your tax return, you should do your research before choosing someone. You can ask family members and friends for referrals or visit the IRS’ Directory of Tax Preparers to find a qualified tax preparer. Taking steps to make sure the tax preparer you use is legitimate can help you protect your personal information.

Request An Identity Protection Pin (IP PIN)

You can also request an IP PIN for protection. It’s a six-digit unique number that can prevent scammers from using your SSN or TIN to file a fraudulent return.

The Bottom Line

If a criminal gets a hold of your SSN or TIN, they can file a tax return in your name. As soon as you realize you’re a victim of tax identity theft, report the crime to the FTC or IRS, contact the credit bureaus to request a credit freeze and review all of your financial accounts for fraudulent transactions.

You can protect yourself by following the steps mentioned above. Be cautious with your personal information. For more information and tax tips, visit our Rocket HQSM Financial Learning Center.

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Jerry Brown

Jerry Brown is a personal finance writer based in Baton Rouge, La. He's been writing about personal finance for three years. Financial products he enjoys covering include credit cards, personal loans, and mortgages. Jerry was nominated for a Plutus award for best social media for personal finance in 2020.