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Tax Identity Theft: Could Thieves Steal Your Refund?

Tax identity theft is an unfortunate reality for many taxpayers. It’s important to understand how tax crime works so you can identify the signs early on, and take steps now to minimize your risk of becoming a victim.

A Typical Tax ID Crime

An identity thief generally uses a legitimate taxpayer’s identity and Social Security number to fraudulently file a tax return and claim a refund. This is usually done early in the tax filing season.

The victim typically finds out about the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because the Social Security number has already been used to file a tax return for the same tax year. The IRS then delays processing the refund until it can determine who the legitimate taxpayer is.

How do thieves obtain Social Security numbers? They may hack into victims’ computers or the unsecured websites and networks of businesses. Or they might steal wallets or purses, rummage through trash or steal statements from mailboxes. Sometimes, criminals make phone calls claiming to be from businesses that need information. Other times, they buy information from informants who have access to Social Security numbers at their jobs.

If you’re an employer, you can also be a victim of tax identity theft. The Employer Identification Number of a real organization could be fraudulently used to report fake earnings and withholding. The IRS may issue a refund to the thief before it realizes that there is no matching, legitimate paperwork from an employer.

How To Protect Yourself

There’s no way to fully shield yourself from tax-related identity theft but there are steps you can take to minimize the chances — or at least to identify a possible theft early to reduce the damage:

  • Don’t give out your Social Security number to businesses or medical providers just because they ask for it. Provide it only when required. The Social Security Administration advises consumers to “ask why your number is needed, how it will be used and what will happen if you refuse.”
  • Protect your financial information. Shred documents with personal identifying information.
  • Don’t provide information in response to email or text messages. Don’t give personal information over the phone unless you initiated the contact or you know whom you’re dealing with. Don’t carry your Social Security card or documents with your number on them. Keep these in a safe place at home.
  • Don’t respond to phishing schemes. The IRS doesn’t get in touch with taxpayers by email or text message to request personal information. An initial contact from the IRS about your tax return comes in the form of correspondence through the U.S. mail.
  • Protect personal computers by using firewalls, anti-spam/virus software and updated security patches.
  • Regularly change passwords for online accounts.
  • Check your credit report at least every 12 months for any suspicious activity.
  • Review your Social Security Administration earnings statement annually to ensure there are no reporting problems with your records. Set up an account at www.socialsecurity.gov/myaccount.

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