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You may dread doing taxes, but tax identity thieves revel in it. To them, it's an opportunity to profit at the expense of unsuspecting victims. Tax identity thieves steal Social Security numbers or other tax identification information and use them to file fake returns, collect fraudulent refunds or work illegally.
If you've received a notice about suspicious activity from the IRS, or you've received unexpected W-2 or 1099 forms in the mail for income you never earned, tax identity theft may be the culprit. Tens of thousands of taxpayers experience tax identity theft every year. Here's a quick guide to what it is and how it works and what you can do about it.
What Is Tax Identity Theft?
Tax identity theft happens when someone uses your Social Security number to steal your tax refund or work under a false identity. Tax identity theft relies on your Social Security number or tax ID, which thieves may acquire through cyberattacks and data breaches involving current or former employers; stolen W-2, 1099 and other tax forms; your own internet-connected devices via malware or public Wi-Fi hacks; other data breaches that include your Social Security number (including breaches involving government agencies); or even a corrupt tax preparer.
Tax identity thieves use your Social Security number to file a fake tax return and receive a refund. They may also use someone else's taxpayer ID to work illegally or claim a dependent. Many victims don't realize they've been defrauded until they receive a notice from the IRS. Here are a few examples of IRS notifications that may raise your suspicions:
- A letter inquiring about a suspicious tax return you didn't file
- A notice that you can't e-file your tax return because of a duplicate Social Security number
- A letter explaining that your dependent has been claimed on another tax return
- An IRS notice that an online account has been created in your name, or that your existing online account has been accessed or disabled
- IRS records indicating you've received wages or other income you don't recognize, or W-2 or 1099 forms you've received in the mail from unfamiliar organizations
- An IRS notice that you owe additional tax or that you've had collection actions take against you without your knowledge
- An employer identification number you didn't request has been assigned to you
Do not respond to text, email or phone messages from the IRS; they're scams. The IRS only contacts taxpayers by mail. If you receive any confusing notice from the IRS, including any of the ones listed above, contact the IRS directly to learn more.
Steps to Take if You're a Victim of Tax Identity Theft
If you suspect a problem, report it as soon as possible to the IRS, law enforcement and all three credit bureaus (Experian, TransUnion and Equifax). Here's a step-by-step to addressing tax identity theft.
1. Contact the IRS
How you reach out to the IRS depends on whether they've contacted you first about suspicious activity.
If the IRS sends you a letter about suspected identity theft, follow the instructions in their letter. The IRS will generally contact you if they receive more than one tax return in your name, if someone else has claimed you as a dependent on their tax return, or if they otherwise suspect foul play. They may ask you to verify your identity online, by phone or in person at an IRS office.
If you are unable to e-file your tax return because another return has already been filed in your name, or you have another reason to suspect identity theft, use IRS Theft Affidavit Form 14039 to alert the IRS that your identity has been stolen. File your tax return by mail and attach Form 14039 if your taxes are due. You can request a copy of the fraudulent return from the IRS to find out what's been filed in your name. Don't wait to file your tax return until the issue is resolved: Mail in your return by the tax filing deadline and continue to work on resolution with the IRS.
2. File a Report With the FTC and Law Enforcement
You can file an identity theft report with your local police department or with the Federal Trade Commission (FTC) on IdentityTheft.gov. A report helps you document the identity theft, which can be helpful in your dealings with the IRS as well as credit reporting agencies, financial institutions and creditors. IdentityTheft.gov can also help you file an IRS identity theft affidavit and create a personal recovery plan.
3. Notify State and Local Taxing Authorities.
Tax identity thieves may have filed state or local taxes in addition to federal taxes, so report the theft to your state and local taxing authorities and follow their guidance on next steps.
4. Protect Your Credit
Unauthorized use of your Social Security number shows that your personal information is compromised. Consider taking the following steps to protect your credit and finances:
- Review your credit reports at all three credit reporting agencies. Look for credit inquiries and new accounts you don't recognize. Contact any creditors that have opened accounts in your name that you didn't apply for and let them know the new accounts are fraudulent. Ask them to close fraudulent accounts and not to hold you responsible for any charges or debts.
- Request a fraud alert with any of the three major credit reporting agencies. Requesting a fraud alert, or security alert, on your credit report at any credit bureau will trigger an alert on all three. A fraud alert places a notice in your credit file that you have been a victim of identity theft and requires creditors requesting your credit information as part of a credit application to verify your identity first.
- Freeze your credit. A credit freeze is an optional extra step that goes further than a fraud alert and locks the information in your credit file to limit creditors, insurers, potential landlords and employers from accessing the information without your permission. Freezing your credit will prevent both legitimate and fraudulent accounts from being opened in your name while the freeze is in place. They must also be instituted and lifted with all three credit bureaus individually.
How to Avoid Tax Identity Theft
No prevention measure will make you absolutely fraud-proof, but you can take steps to protect yourself from identity theft:
- Keep your Social Security number protected. Don't carry your Social Security card with you. Shred any document that has your Social Security number on it before discarding it. Store your tax returns in encrypted, password-protected files.
- Use security software to protect information on your computer and mobile devices. Don't reuse passwords from one site to the next.
- Use multifactor authentication if you use online software to prepare your taxes. Multifactor authentication requires you to enter a one-time passcode or use biometric identification (fingerprint or face ID) when you sign in as an added layer of security.
- Recognize phishing emails, texts and phone calls. Don't provide account numbers, passwords or login information, or your Social Security number, to anyone reaching out by email, text or phone. When in doubt, contact the company or organization yourself to verify the issue and address it directly.
- Beware of IRS scams. Be especially wary anytime you receive an email, text or phone call from someone saying they're with the IRS. The IRS only reaches out to taxpayers by mail.
- Get an identity protection PIN from the IRS. If you have an IRS online account, you can get a new six-digit identity protection (IP) PIN number each year to use when you file your tax return. Your IP PIN verifies that it's you filing the return.
- File early. The earlier you file your tax return, the smaller the window is for fraudsters to file in your name.
The Bottom Line
Tax identity theft makes it more difficult for you to file your taxes and receive a tax refund. A duplicate tax return could prevent you from e-filing, require you to file additional forms and verify your identity, and cause administrative delays. Because tax identity theft is a perennial problem, the IRS has processes in place to help you protect your tax ID, file your taxes on time and address any fraud that may occur.
Tax identity theft should also put you on alert for additional fraud. Checking your credit report for suspicious activity, placing credit alerts or freezes on your credit file, and considering identity theft protection or free credit monitoring may help you prevent and spot fraudulent activity as it happens. Dealing with identity theft is a long-term proposition, but there are tools to help you minimize the impact and undo the damage where necessary.