How to Keep Your Tax Refund Safe From Fraudsters

A stressed couple working on finances in their home. They are reading documents while sitting on their couch.

If someone has your Social Security number, there's a lot they can do to damage your finances, including filing a fraudulent tax return in your name.

Identity thieves file taxes fraudulently to steal whatever tax refund may result, and there's no surefire way to stop it. But there are some things you can do to reduce your risk. Here's what happens when someone steals your tax refund, what you can do to prevent it and which steps to take if someone has filed a tax return in your name.

What Happens if Someone Steals Your Tax Refund

If someone uses your personal information to file a tax return in your name, you typically won't know until you try to file yourself or receive some form of communication from the IRS.

Fortunately, tax identity theft isn't as common as it used to be. Between 2015 and 2017, reports of fraudulent tax returns from identity theft victims dropped by 65% due to efforts by the IRS, state tax agencies and the tax community, according to the IRS.

But while the IRS and other agencies are getting better at foiling tax identity theft, there were still 242,000 reported cases in 2017, according to the IRS, which means you're still at risk. Here are some warning signs that could indicate a fraudulent tax return:

  • You get a letter from the IRS about a suspicious tax return, and you haven't filed one yet.
  • Your e-filed tax return is rejected because of a duplicate Social Security number.
  • You get a tax transcript in the mail that you didn't request.
  • You get a notice from the IRS that an online account has been created in your name or your existing account has been accessed or disabled, and you haven't taken these actions.
  • You get a notice from the IRS that you owe additional tax, your refund is offset or collection actions are taken against you regarding a tax year for which you didn't file.
  • IRS records show you received income from an employer you don't recognize and for whom you didn't work.

If someone uses your information to file a fraudulent tax return, your own return will be rejected as a duplicate. If you're expecting a refund, it could be delayed while you sort out the situation with the IRS. That said, you don't have to worry about missing out on the refund altogether.

Making matters worse, tax identity theft could be just the tip of the iceberg. If someone has enough information to file a tax return in your name, it means they could also have opened credit accounts, filed fraudulent health insurance claims and more.

How to Prevent Tax Refund Theft

No matter how careful you are, it's still possible for hackers to gain access to your Social Security number and other information via data breaches and other means beyond your control. That said, here are some concrete steps you can take to safeguard your tax refund:

  • File early: Federal tax season typically starts at the end of January, and most people receive W-2 forms and other required tax documents around that time. As soon as you have everything you need to file, don't waste any time getting the job done. That way, if someone tries to file a return in your name later, it'll be automatically denied as a duplicate.
  • Keep your information secure online: The internet provides criminals with several opportunities to steal your personally identifiable information. While there's not much you can do to ensure the companies that handle this data will keep it secure, using strong passwords—unique, long strings of letters, numbers and symbols—can make it harder for hackers to access your accounts. If you need help keeping track of all your passwords, use a secure password manager like LastPass or 1Password.
  • Learn how to spot phishing attempts: Phishing attacks are emails and text messages from fraudsters posing as legitimate companies. They'll typically ask you to provide sensitive information, and can include a link or attachment that can install harmful malware to steal your personal information. If you get an email that seems suspicious, don't click on any links or attachments. Even if the email seems to be from a legitimate organization, hover over links to view the URL before you proceed.
  • Keep important documents safe: Some documents, such as your Social Security card and birth certificate, can't be securely stored online or on your computer. Keep important paper documents in a safety deposit box at your local bank or in a fireproof lockbox at home to keep them safe from prying eyes.
  • Take your time when choosing a tax preparer: If you're using a tax professional or online service to file your tax return, do some research before you narrow down your selection. Look up customer reviews or ask for references, so you can make sure the person or service you're using is legitimate and will keep your data secure.
  • Watch out for tax scams: The IRS will never call to threaten you or to demand immediate payment with a specific payment method. Nor will they demand you pay taxes with no questions asked or the right to appeal. If you get such a call from someone claiming to be an IRS agent or someone from a tax preparation firm, it's likely a scam. Hang up and call the IRS or business in question to confirm.

As you take these steps, it's still possible to fall victim to tax identity theft, but criminals will have a much more difficult time succeeding.

What to Do if You Think Someone Stole Your Tax Refund

Call the IRS Identity Protection Specialized Unit right away at 800-908-4490. Create a file with every piece of paperwork you can get your hands on, dating back several years, to help prove you are who you say you are. File a police report and an IRS ID Theft Affidavit Form 14039. Be patient. Your refund will be delayed, and if that delay causes you financial hardship, you can appeal through the IRS Taxpayer Advocate office.

Once you've taken this first step, here are some other things to do if you're a victim of tax identity theft:

  • Contact the Federal Trade Commission (FTC): The FTC doesn't investigate tax identity theft but can provide resources for you to assist in the process. Also, consider filing a police report in case you need it later to prove that someone is using your identity for more than tax fraud.
  • File a paper return: Though someone has filed a fraudulent return in your name, you still have to file the correct one. Submit your return and collect your refund or pay what you owe on time to avoid penalties and interest.
  • Consider freezing your credit: Freezing your credit will prevent anyone from accessing your credit reports, including creditors. If the person who fraudulently filed your tax return tries to open new credit accounts in your name, a credit freeze will stop them in their tracks. Alternatively, you can place a fraud alert on your credit reports, which encourages creditors to call you to verify your identity before approving a credit application.
  • Check your open accounts: If someone has your Social Security number, they could also have access to your financial accounts. Check your bank, credit card and investment accounts to make sure there aren't any unauthorized transactions. If you find any, report them immediately to the institution.
  • Request an identity protection PIN: If you live in an eligible state or are a confirmed tax identity theft victim, you can receive a six-digit identity protection PIN from the IRS. This PIN adds an extra level of security when you or someone else tries to file a tax return in your name. Without it, an e-file return will be automatically rejected, and a paper return will be delayed until the IRS can verify the PIN.

Keep an Eye on Your Credit Score and Reports

If someone has enough of your personal information to file a tax return in your name, they also could be opening fraudulent credit accounts with your data. Check your credit score regularly in case there's a sudden, unexplained drop. If this happens, it could be a sign that you're a victim of identity theft.

Also, get a copy of your credit report at least once a year to look for fraudulent accounts. If you find something, your Social Security number could be compromised.