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Personal Finance

Will Identity Theft Delay My Tax Refund?

You're ready to e-file your taxes, but the IRS website says you've already filed a return. That's strange. There are things you might do on autopilot without remembering, but filing your taxes probably isn't one of them. What's going on?

For many thousands of Americans, the answer is tax identity theft. This is when criminals use your Social Security number to file fake tax returns in your name—and cash in on a fraudulent refund. Since the taxes were filed in your name, you are on the hook for notifying the IRS, sorting out your identity with them, filing your actual tax return and then waiting for any refund you might be due. Though there's no set timeline for how long this process could take, chances are tax identity theft will add weeks and maybe months to your tax-filing process. Here's where to start.

What to Do if You Discover Tax Identity Theft

Many victims of tax identity theft don't discover the problem until they try to file their taxes. Receiving a message from the IRS website that you've already filed a return or receiving a notice in the mail that you've filed multiple returns for the year are classic signs of trouble. If you believe you've been the victim of tax identity theft or you've been notified by the IRS, follow these steps:

  • Contact the IRS Identity Protection. You can reach them by phone at 800-908-4490 to open a case or get answers to any questions you may have.
  • Fill out IRS Form 14039, Identity Theft Affidavit. You may also want to file this form with the IRS if you've been a victim of identity theft that does not involve the IRS or your taxes.
  • Verify your identity. The IRS may send you letter 5071C, instructing you to verify your identity. You may be asked questions about past returns as part of the verification process.
  • Request a fraud alert. All three major credit reporting agencies (Experian, TransUnion and Equifax) provide this option, and filing a fraud alert with any credit bureau will trigger them to notify the other two. Alternatively, adding a credit freeze to your account will prevent credit checks associated with new credit while the freeze is in place. If you want more advanced identity theft monitoring, protection and fraud resolution assistance, consider Experian IdentityWorksSM.
  • File a complaint with the FTC on IdentityTheft.gov. You may also wish to file a report with your local police.

When It's Time to File Your Taxes

As tax day approaches, you may wonder what to do about filing your taxes. Should you wait for your case to resolve with the IRS before proceeding with this year's return? Or should you file anyway and await the results?

File your taxes promptly. Duplicate returns can trigger problems with the IRS e-file system, so be prepared to file a paper return if necessary. If your return was rejected when you tried to e-file, you have 10 days to print it out and put it in the mail, even if this takes you beyond the federal tax filing deadline.

What if you already filed your taxes and have now received a letter from the IRS informing you that multiple returns have been filed under your Social Security number? Follow the instructions in the IRS letter: Contact the agency with the information they need to verify your identity and move forward with processing your tax return.

Will Your Refund Be Delayed?

Whether the IRS contacts you about duplicate tax returns or you've reached out to them after having trouble e-filing your return, tax identity fraud will probably delay your refund. Although every case is different, weeks or even months can pass before your case gets resolved.

Think through this hypothetical: An IRS screening system finds possible identity theft related to your tax return. From there, the identity theft resolution process begins:

  • The IRS sends you a letter through the U.S. mail to notify you of the issue and ask you to verify your identity. This can be done online, by phone or in person at an IRS office. It's important to note that the IRS will always send a letter first—you will not receive an impromptu call or email from them requesting information or payment or threatening to throw you in jail. It's possible that follow-up correspondence will be done via other methods, but a letter will always come first.
  • If you don't receive the letter, don't read it or don't respond, your return remains on hold.
  • Once you verify your identity, the IRS will process your return, and may apply additional scrutiny to help safeguard against fraud. These checks may take only a few days to complete, but about a quarter of returns requiring a manual review take 56 days or longer, according to the IRS.
  • Once your return is processed and a refund approved, the IRS can take a few weeks to issue a refund.
  • If you've elected to receive your refund by check, add at least a week for the U.S. mail to deliver it.

IRS fraud filters flagged 5.2 million refunds in 2020. Roughly 18% of the tax returns flagged for possible identity fraud by the IRS in 2020 took longer than 120 days to resolve, according to the IRS Taxpayer Advocate Service. In 2020, 65,000 taxpayers sought Taxpayer Advocate Service assistance with pre-refund identity or income verification issues. If you experience a delay in getting your refund due to identity theft and it causes you financial hardship (think eviction, utilities being disconnected, inability to pay for medical care), you can contact the Taxpayer Advocate Service to file an appeal.

Be Proactive With Your Identity Going Forward

Clearly, the best way to deal with tax identity fraud is to avoid it in the first place. Study up on how to avoid tax identity theft. Three tips to consider:

  • Limit access to your Social Security number.
  • Only work with a trusted tax preparer.
  • Look out for phishing scams, including callers or emailers posing as the IRS.

New in 2021, all taxpayers have the option of getting an Identity Protection PIN (IP PIN) valid for one year from the IRS to help protect their tax identities. Doing so will provide you with an added layer of security when filing your taxes. You use an IP PIN when filling out your paper or electronic tax forms. The IRS will not contact you and ask you to provide an IP PIN, either by phone or email. If you receive a call or an email solicitation that requires you to give your IP PIN, hang up or delete the email.

Remember, too, that any criminal who has enough personal identifying information on you to file a fraudulent tax return also has enough information to open credit card accounts, file for unemployment or use your personal identifying information on a job. In addition to checking your credit reports, placing fraud alerts and activating credit freezes at all three credit bureaus, you may want to consider using identity theft protection such as Experian's IdentityWorks. IdentityWorks monitors your credit file and Social Security number and alerts you to any suspicious findings. It also enables you to lock and unlock your credit file with an easy-to-use app and offers identity theft insurance and fraud resolution assistance, so managing your identity is simpler.

That's important, because identity theft can complicate your life—and your taxes—in many unwelcome ways. If your identity has been stolen to file a fake tax return, your tax return will probably take longer than usual to process and your refund will likely be delayed. File your taxes as early as possible and respond promptly to any IRS communications for the best results.