Tax Identity Theft: What You Need to Know

Tax identity theft is an issue for many individuals, especially during tax season. As personal information is more easily accessible online, criminals find it simple to steal your tax identity and submit false returns using your name. It is important to grasp how tax identity theft occurs, how it impacts you, and what actionable steps you can take to safeguard yourself in today’s digital landscape.

What is Tax Identity Theft?

Tax identity theft happens when someone uses your details— such as your Social Security number, date of birth, and other identifiable information—to file a tax return in your name. The thief usually reports fraudulent income figures to claim a refund. In 2022, the IRS reported over 80,000 confirmed cases of tax identity theft, showcasing the seriousness of this issue. This can lead to significant financial and emotional distress for the victim.

How Does it Happen?

Your personal information can be compromised in several ways. Identity thieves frequently use tactics like phishing emails that appear legitimate, data breaches from unsecured databases, or even stealing physical documents from your home. Once they have your information, they can electronically file a tax return and claim your refund before you even file your return. For example, in 2021, nearly 1 in 5 people reported receiving phishing attempts, indicating a growing threat.

Signs of Tax Identity Theft

Recognizing tax identity theft can be tricky, but certain indicators can help. Here’s what to look for:

1. Unexpected Tax Forms: Receiving tax forms like a W-2 or 1099 for income you did not earn is a serious warning sign. For instance, imagine getting a W-2 showing you earned $50,000 when in reality, your income was only $30,000.

   
   

2. IRS Notifications: If you receive a notice from the IRS alerting you that multiple tax returns were filed using your name, do not ignore it.

   
   

3. Unusual Refund Amounts: If your refund seems unreasonably high or low compared to previous years, it could indicate identity theft. For example, if you typically receive a refund of $1,500 but this year you’re seeing $8,000, investigate immediately.

   
   

How to Protect Yourself

Preventing tax identity theft is simpler than addressing the consequences. Here are some straightforward steps to help you stay secure:

1. Secure Your Information: Create strong, unique passwords and enable two-factor authentication for online accounts. Be cautious about sharing personal details online. Limit your sharing to trusted, well-known sites.

   
   

2. Be Wary of Phishing Scams: Always verify the legitimacy of emails. Instead of clicking on links, type the URL directly into your browser. In 2023, over 75% of people reported encountering phishing attempts. Stay cautious.

   
   

3. File Early: Filing your tax return as soon as possible can be one of your best defenses against tax identity theft. Doing so reduces the chance that someone else will use your information to claim a refund first.

   
   

What to Do If You Are a Victim

If you suspect you have fallen victim to tax identity theft, take action swiftly:

1. Contact the IRS: Report the issue to the IRS right away and request copies of any forms filed using your identity.

   
   

2. File a Report: Document the crime by filing a report with the Federal Trade Commission (FTC) to get a recovery plan in place.

   
   

3. Place a Fraud Alert: Notify major credit bureaus like Experian, TransUnion, and Equifax to place a fraud alert on your accounts. This helps to prevent new accounts from being opened in your name.

   
   

   
   

In today's society, understanding tax identity theft and taking preventative measures against it is essential. By learning what tax identity theft is, how it occurs, and how to effectively protect yourself, you can significantly reduce your risk of becoming a victim. Stay vigilant and take prompt action when needed to safeguard your tax identity. If you’d like more information, feel free to reach out to The Center for Financial, Legal, & Tax Planning Inc. at (618) 997-3436.