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You’ve probably heard the saying, “the early bird gets the worm.” But what does that mean for Americans who file their tax returns early?
To most of us, it usually means quicker refunds. But early filing could also mean significantly reducing your chances of falling victim to a growing trend in identity theft. It’s called tax return identity theft and it’s affecting Americans at an alarming rate. In fact, per the Taxpayer Advocate Service (TAS), an independent organization within the IRS, 5.2 million tax returns were tagged as fraudulent in 2020. Not to fret! We’ll help you understand tax related identity theft, the signs to look out for, and what to do if it happens to you.
Tax return identity theft is the act of filing a return using a stolen identity and taking the victim’s refund.
Equipped with three simple ingredients — a name, birthdate and Social Security number — the thief can commit tax fraud resulting in delayed or stolen refunds. And while a swiped refund may seem like a worst-case scenario, thieves may also use your stolen identity to obtain employment, an act with even greater impact.
When an identity thief uses your SSN for employment, all the income they earn under your identity must be reported. Meaning that when you go to file your taxes and the earned income numbers don’t match, the IRS will flag your return as suspicious. This can have significant financial impacts if taxes on the unclaimed earnings are imposed and can lead to prolonged stress with a request to audit your taxes.
The victims of fraudulent tax return identity theft can face stressful obstacles on their path to recovering from a stolen tax return and identity theft. One of the most significant steps in protecting your financial future from being compromised is education and understanding how this type of theft occurs, and what to do if you find yourself in this situation.
Tax identity theft can happen anytime of the year, in or out of tax season, with February and March showing a significant rise. Tax related identity theft occurs in a variety of ways, like losing a wallet or purse, lost or stolen mail and discarded documents left un-shredded.
But perhaps one of the most common avenues thieves use to snag your identity is through exposed databases, revealing sensitive information from a collection of website users. As more of our daily activities are conducted online, we’ve increased the frequency of sharing our most sensitive information — information hackers can sell online. Make sure to check things like bank and credit card statements often to make sure you haven’t been a victim of tax identity theft.
If you’ve received a letter from the IRS indicating there might be a problem, respond immediately by calling the number provided or contact the IRS Identity Verification Service. If you’ve received an IRS5071C letter asking you to verify your identity, this doesn’t necessarily mean you’re a victim of identity theft, it’s just an added precaution for your safety. Following up with the IRS is your first step and might not require any further action or concern.
If you’ve responded to the letter and it does appear that there is tax ID theft going on, or if you have reason to suspect there’s a concern, the following steps will help you start the process and take back your identity.
First, respond immediately to any IRS notice you receive. Then, be sure to do the following:
Contact one of the three major credit bureaus to place a fraud alert on your credit records.
Get in touch with of your financial institutions and let them know what’s happening. If any accounts have been opened without your permission, or if there is unusual activity on your accounts, have them close the account and recommend how you should proceed.
Complete the IRS Form 14039, Identity Theft Affidavit, print it and then mail it or fax it, according to the provided instructions.
Continue paying your taxes, even if you must do so by the traditional, non-digital means. If you’ve never filed your taxes electronically, there are instructions on the proper way to do so on the IRS’s website.
Each state may be different, so it’s best to check with your state tax agency to see what steps they recommend on the state level.
In a world of increasing digital exposure, the likelihood of sensitive data being stolen is very real. Identity theft occurs every day, so make sure you are doing as much as you can to prevent identity theft. Breath a sigh of relief knowing you can be covered by adding our credit protection and monitoring program, along with identity theft fraud protection.
This article is for informational purposes only and includes information widely available through different sources.
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