Tax-Related Identity Theft: How to Protect Yourself

September 12, 2017 | By: Kari Brummond, EA

tax-related identity theftWith one of the major three credit bureaus experiencing a major security breach, it is more important than ever to protect your identity.  In 2016, 377,000 taxpayers were the victims of tax-related identity theft, and as of July 2017, the IRS has spotted an additional 107,000 victims. These numbers are less than half of the cases found in previous years, but as a consumer, there is still reason to be concerned.

IRS Identity Theft

Unfortunately, if someone steals your identity, they don’t pay your tax bill on your behalf. Instead, they may steal your Social Security Number, file a return, and claim a refund. In order to trigger a refund, the scammers put in all kinds of fake information.

They may even work as a contractor and/or employee and provide fraudulent identity information to their employer–with your social security number. This way, they are able to work and collect income under your name and not pay income any taxes. How? If you are a 1099 contractor, you are responsible for making estimated tax payments in most cases. Or they may be a W2 employee who exempts income taxes with their employer.

Warning Signs 

In most cases, if you are a victim of tax-related identity theft, the first sign may not seem related to the issue at hand. Often, victims realize when they try to e-file. Because a return has already been filed with their social security number, the IRS rejects their real return.

In some cases, you may get a notice that you are no longer eligible for certain income-based benefits. That includes programs like food stamps or state-sponsored insurance plans. In still other cases, you may get a letter from the IRS stating that you owe income tax for a year where you didn’t even file.

You could also receive a 1099 in the mail for a company that you did not work for during the year.

This occurs because someone has submitted a tax return in your name or worked using your social security number, and because of that information, the IRS believes that your income is higher than it really is.

What to Do If You’re a Victim of Tax-Related Identity Theft

If you receive notices from the IRS, don’t ignore them. They could indicate that there has been fraudulent activity on your account. Call the number on the letter you received, and speak to an agent about your concerns. Alternatively, call the IRS fraud department directly at 800-908-4490.

Then, fill out IRS Form 14039 (Identity Theft Affidavit) and mail it to the IRS. If you haven’t filed your return yet, file it as usual, and submit it to the IRS. The last thing you need is to face a penalty for not filing or for filing late.

If the scam artist has already filed online using your information, you may not be able to file online. Just fill out the return by hand or print out a copy, and snail mail it to the IRS.

In addition, you should file a local police report and register a complaint with the Federal Trade Commission. Then, contact the three credit reporting bureaus to put in a fraud alert.

How to Protect Your Social Security Number

To steal your identity, the scammers really only need one thing—your social security number. To protect yourself, you need to keep this number safe.

Keep your social security card at home in a safe place, and be careful about giving your number to businesses. Many businesses request these numbers, and it’s a bit of a tricky issue. By law, you don’t have to give them your number, but they can refuse service if you don’t. Try to substitute an alternative nine-digit number if you can, and only give your number to companies you trust.

On top of that, follow basic safety rules. Shred mail with your social security number on it, make sure your computers have firewalls, and don’t enter your social security numbers on websites over public wifi systems.

Also, check your annual social security earnings statement carefully. If it shows more than you earned, that’s another indicator that someone probably filed a return on your behalf.

How to Protect Your Business

Tax-related identity theft is affecting businesses more and more often. To protect your business, also be careful about your employer identification number. Only share it with people you really trust and keep it under wraps in other situations.

One final thing you can do to protect yourself is to file your taxes early. If you file as soon as possible, that prevents a scammer from getting in there and filing a fake return before you submit yours. If you owe a tax bill due to identity theft, you need to get that bill eliminated. A tax professional can help. Request a free consultation above.