the dangers of tax identity theftWe’ve talked about identity theft on this blog a great deal of times; however, since not all identity theft is the same, we’ve decided to start a series taking a detailed look at different types of identity theft and their effects. Considering this week is both the beginning of the 2018 tax season and Tax Identity Theft Awareness Week, we’re kicking off our series with a detailed look at tax identity theft. Keep reading to learn the ins-and-outs of tax identity theft and how you should handle it.

Defining tax identity theft

Tax identity theft is a type of identity theft that causes direct financial harm to its victims through the theft of tax refunds. The manner in which tax identity theft is accomplished – often by using a victim’s name and social security number – might put victims at risk for other types of identity theft, as identity thieves can utilize the details they collect in a number of ways. Even if you don’t usually receive a refund, you can still fall victim to tax identity theft, as the thief will just use your information to make up your income and claims. While tax identity theft was down last year due to the actions of the IRS, many are worried that it might peak again this year because of fallout from the Equifax breach. Some argue that a lot of the information from the Equifax breach has been leaked in previous breaches, but it’s still likely that the breadth of this breach might encourage newcomers to get in on the tax identity theft game.

How does tax identity theft differ from other types of identity theft?

Tax identity theft is somewhat unique in that the window to catch this type of identity theft differs from those of other types of identity theft. While options for monitoring your credit year-round (or viewing your credit health with free reports and free scores) exist, victims are at the mercy of the IRS’ processing speed when it comes to identifying and addressing any fraud committed against them. That’s because you won’t know if you fell victim to tax identity theft until the IRS denies your legitimate tax return. This is why dealing with tax identity theft successfully can sometimes require a degree of proactiveness not required with other types of identity theft, as illustrated by our editor’s experience with tax identity theft two years ago.

What are some misconceptions about tax identity theft?

There are a lot of misconceptions about tax identity theft, but here are the two most important ones about tax identity theft worth addressing:

  • Filing early means you’re completely safe. Filing early is one of the best ways to fight tax identity theft, but that said, it’s not a silver bullet. Still, although filing early won’t fully guarantee that you defeat fraudsters by turning in your return before they do, the later you wait to file, the more likely you are to become a victim.
  • Tax identity theft only affects your taxes. As stated above, because tax identity theft requires your personal identifying information (e.g., your social security number), it can either result from other types of identity theft or make you more vulnerable to them. That’s why if you discover that you’re a victim of tax identity theft, you should take the exact same steps you would if you were a victim of any other type of identity theft, as noted by our editor when she fell victim. First, you should contact the IRS — note that the bureau may have contacted you first — and file an identity theft report with the FTC. From there, you’ll want to monitor your credit reports for changes and freeze your credit as a precaution. Also, keep an eye on your other accounts (e.g., your credit card and bank accounts) for potential fraudulent activity.

Can you prevent tax identity theft?

There is no way you can completely prevent tax identity theft — or any identity theft for that matter — but there are several things you can do to reduce your likelihood of becoming a victim of tax identity theft. Here are a few of them:

  • Guard your social security number and monitor it for usage. Your social security number is one of the keys to your financial life, which is why it can pay to have a service monitoring it for you. Identity theft protection services are usually a good investment for an identity theft victim, as they will not only monitor your social security number and other personal information on the Internet black market, but our top-rated services also monitor your credit reports and scores. What’s more, a number of the identity theft protection services we review offer free or $1 trials, giving you the opportunity to test them before you make any financial commitment. If you don’t want to invest in such a service, you will need to be very aware of any mail you receive and make sure you’re diligent in checking your accounts for potential fraud. It should also be noted that Discover provides its cardholders with free social security number monitoring, which is a nice perk if you’re a Discover cardholder or you plan to become one.
  • Have good financial hygiene. It’s important you’re aware that the convenience of the Internet can also present opportunities for your information to be stolen. This means you’ll want to make sure you practice good cybersecurity habitsespecially when it comes to your bank accounts — whenever accessing financial services online. Offline, you should make sure that you don’t leave around any papers or statements, as anyone who enters your home (or robs you) will have access to whatever you keep laying around. Finally, when disposing of sensitive statements you should cross-shred and toss the scraps into separate piles for good measure.
  • Collect your tax documents now so you can file early. Even though we said filing early isn’t a silver bullet, it is still one of the most powerful options in your arsenal against tax identity thieves. As such, you’ll want to collect all your W-2s, 1099s and any other tax forms as soon as you can, so you can file early in the season. If any of your tax documents are delayed, make sure to follow up on their status to see when you can expect them.
  • Watch out for phishing and scammers. As tax season heats up, there will be a lot of scammers calling potential victims or sending out emails. In order to protect yourself from these scams, you’ll want to familiarize yourself with how phishing works, what social engineering is, the tactics scammers use to pull off tax scams and the general anatomy of a scam. The IRS releases a list of the dirty dozen tax scams to look out for every year, which we’ll be covering as soon as it’s released.
  • Follow up with the IRS 22 days after e-filing (or six weeks after pen-and-paper filing). While returns can take a while to process if you e-file, it usually should take no more than 21 days for your return to be processed (note that it takes six weeks for paper filers). There are exceptions, of course, but if you know for a fact you don’t have a complex return, it might be better to follow up sooner rather than later. If you’re expecting a refund, you can also see its progress on the IRS’ website.

What can you do if you become a victim of tax identity theft?

If you become a victim of tax identity theft, you should act quickly and do the following:

  • Contact the IRS. This step is obvious, but you’ll need to work closely with the IRS in order to resolve the issue. In the instance that you’re proactive and suspect something is wrong, you should call the IRS like our editor did. Usually, though, many victims find out about a duplicate tax return filed in their name when the IRS contacts them via mail or their electronic return is rejected because their primary and/or secondary social security number was misused. In instances like these, you’ll usually need to send the IRS a 14039 form, which is an Identity Theft Affidavit. You should append this form to a physical tax return if you’re unable to e-file.
  • Make sure the incident is well recorded. As stated above, contacting the FTC and police is key, as well as notifying the bureaus by either putting an alert or freeze on your reports. This will help you in the future if further damage is done to your credit or identity. It’s also wise to keep a record of who you contact on which day at what time. This is especially helpful when you contact the IRS, since you will be working with a number of people and it’s good to be able to say, “I spoke with Jane on Feb. 22 at 8:25 a.m.” so they know this isn’t the first time you’re contacting them.
  • Monitor your accounts. We already noted this above, but anyone who falls victim to tax identity theft should also be vigilant with their other accounts, like their credit cards or bank accounts. Because your social security number and other personal information is needed to complete tax identity theft, it’s best to make sure you keep a watchful eye on any account that is linked to such information, as a thief may use your information to complete other types of identity theft.

Visit our tax prep blog to learn more about protecting yourself during tax season, and for more information about identity theft, continue following our identity theft protection blog where we’ll post the next identity theft 101 post.