There is a lot written about identity theft, but very little about tax fraud. Unfortunately, they are both connected, and tax fraud costs the IRS (tax dollars) billions of dollars each year in losses. Not only are those your tax dollars stolen by thieves, but fraud under your social security number can delay a refund an average of three months, while the IRS investigates and corrects the problem.
This year, a new law passed in 2015 called Protecting Americans From Tax Hikes Act, implements additional procedures to address the increase in tax fraud. The most noticeable change to consumers is the delay of refund payments which cannot begin until February 15, for all filers who claim the Earned Income Tax Credit (EITC) or additional tax credit.
Last year, the IRS stepped up procedures and began working with state governments and corporations to tackle the rampant problem of growing tax fraud. Those efforts stopped 1.1 billion dollars in fraudulent tax returns, many coming from foreign countries.
How Do Criminals Steal Your Information?
Not all theft occurs during the tax season. Thieves who steal your information from company security breaches or other fraud during the year can then sell your data to other criminals, who then file taxes in your name. You may not realize you have compromised personal information until the IRS rejects your tax return.
Three Common Ways Criminals Use Stolen Information:
Thieves can steal your personal information, including your social security number and then file taxes in your name using fraudulent W-2s, and 1099s. When you file taxes with the IRS, you receive a notification that a tax return with your social security number is already on record. You must then mail your return and provide evidence that you are who you say you are.
Crooks can sell your stolen personal information, including your social security number to an illegal immigrant, criminal or other individual who wants to work under an assumed name. They work and receive a W-2 from the employer. When you file taxes, your return gets flagged because you do not include all of your income. The IRS audits your tax return, and you must work with them to correct the error from the fraudulent W-2.
Criminals use stolen data to file for public assistance which might include social security, Medicaid, Medicare, Food Stamps, or other public assistance in your name. You may not learn about the fraud until the IRS contacts you regarding payments made under your name.
Top 8 Things You Can Do to Protect Your Information and Prevent Tax Fraud
While the IRS works to reduce losses due to fraud and catch criminals before distributing funds, there are things you can do that will minimize your risk of becoming a victim.
- File early. Electronic filing catches duplicate returns with the same social. If you file a return ahead of thieves, they will be unable to file under your name.
- Direct Deposit your refund. Mailed checks can be stolen from mailboxes or redirected into a thieve’s account. Having a direct deposit into your account is the safest and fastest way to receive your refund.
- Log off websites completely. Anytime you visit a website and disclose personal information, log off and close the window. Online banking, shopping, and tax related activities should include extra diligence to protect your identity. Only save your password and user name on your personal computer and require log-in credentials even at home.
- Update software and antivirus services before completing your taxes. Software updates plug vulnerabilities found with the software. Cyber criminals get more sophisticated every week, finding new ways to steal personal information. Software updates keep up with these advancements.
- Avoid using public or unsecured networks. The library is not the place to file your tax return. Password protected public networks still allow everyone with the password to see everything you do on the network. Complete sensitive transactions from your home network. If you must use a public network, take additional steps to ensure the safety and encryption of your data.
- Use caution when responding to IRS emails you receive. Any email requesting personal information is not legitimate. The IRS does not threaten, have you re-confirm information, or click on links, through the email process. Most majority of IRS correspondence is through snail mail. Report suspicious emails to [email protected]. Call the IRS directly if you are unsure of the legitimacy of a specific email you receive.
- Check your credit report. It is good practice to review your credit report once a year through annualcreditreport.com. There is no cost. Carefully examine the report for any unusual activity such as accounts you have not opened, or inaccurate personal information, which could be signs of fraud. The credit report will not identify a problem with your taxes, but could indicate that someone has stolen your personal information.
- Shred important papers containing sensitive information. When you finish filing taxes, shred everything you do not need to save. Always shred old tax returns you no longer need, rather than just throwing them in the trash. Throughout the year, any information with account numbers, social security numbers, or birth dates you should destroy before disposing of.
It takes vigilance and caution to prevent fraud. International criminals have sophisticated programs designed to steal from innocent consumers. Leaving sensitive information in view of strangers and not protecting online accounts with strong passwords are common ways strangers steal your identity.
Tax fraud is a priority at the IRS, and they are working to provide better security of your tax information. W-2s now have authentication codes to ensure they come from legitimate companies. You must provide additional authentication, when filing your taxes, and you must include a phone number when requesting tax returns, and answer security questions. These new anti-theft practices are designed to protect you from becoming a victim of tax fraud. You can also do your part will reduce the risk of it happening to you.