Scam alert: You might not have started working on your 2015 Income Tax returns yet, but identity thieves are already hard at work phishing for your tax refund. Identity theft scammers stole more than $5.2 Billion in Tax ID thefts in 2014, according to the Federal Trade Commission, which reports that it’s the biggest form of ID theft.
Tax ID fraudsters file early because they have a wealth stolen personal information that includes names, dates of birth, and Social Security numbers, which they can use to steal your tax refund.
The scam only works for returns that have not been filed by the real, legitimate taxpayer, so the scammers and fraudsters are working hard right now, in January and February, betting that you will wait until March or April to file. Since refunds often are issued on a prepaid debit card that’s easy to cash, Tax ID theft is a lucrative business.
According to the National Consumers League, the scam works this way:
A tax ID fraudster, often part of a ring of scammers, will file dozens or even hundreds of phony returns with other consumers’ personal information on it with the goal of tricking the IRS into issuing a tax refund before the legitimate taxpayer can file. Hardly anyone files that early, so it gives scam artists a window of opportunity to file ahead of everyone else and collect the refund.
Typically, the first inkling you get that you were a victim is when you file and it is denied by the IRS because the scammers have already filed in your name and cashed in on your refund.
Even your kids are not immune from Tax ID fraud. A popular tactic of tax ID fraudsters is to use stolen children’s personal information and claim them as dependents in to get an even bigger refund.
The IRS claims state tax authorities and tax preparation firms are taking steps to reduce Tax ID identity theft scams for the 2016 filing season, but it won’t stop the fraud completely. Simply, it’s up to you to protect yourself and your identity from theft.
How to protect yourself from Tax ID identity theft
File early. File as early in the tax filing season as possible. The longer you put off filing your taxes, the more time you give the scammers to run their scam. While the IRS will accept returns as early as January 1, most likely you’ll have to wait at least until mid-January, until you get your W-2 forms and 1099 forms from banks and brokerage accounts. Once you have those critical documents, start working on your state and federal returns immediately. This is especially true this year, since online tax preparation firms are instituting new security measures that may require additional time to complete.
Protect your personal information. Taking steps to reduce the exposure of your personal information online is a smart strategy any time of the year. It is doubly true during tax time since tax ID thieves will be trolling the Internet looking for personal information they can use to commit fraud. Be sure your computer software is up to date, especially programs that protect you against malware or spyware, change passwords on social media and web mail accounts, don’t use the same password across multiple accounts, turn on two-factor authentication, and check your credit report for unauthorized activity. It’s also a good idea to contact the credit reporting agencies and put a freeze on anybody opening new credit cards or applying for a car loan or mortgage in your name. You can remove the freeze after April 15. Or not.
Beware of phishing emails. Tax filing season is a popular time for phishing emails – emails that look like they are from an organization you know, including from the IRS, but really come from scammers. Phishing emails are designed to trick you into clicking on a link or attachment that installs malware on your computer. That malware could harvest personal information like passwords or other sensitive information tax ID thieves can use to files their phony returns, or steal your bank account. Be especially wary if you get an email from your bank, the IRS or even the police or FBI. Do NOT click on any links or attachments. Instead, look up the customer service telephone numbers for these organizations and contact them on your own if you’re concerned.
While there’s no silver bullet for preventing tax ID fraud, these sensible tips can reduce your risk of becoming a victim. However, if you do fall victim to tax ID fraud, report it promptly to the IRS and your state tax authorities. They have programs in place to help you recover from these scams and help make sure it doesn’t happen again.
For more tips on reducing your risk of tax ID fraud and a step-by-step guide for addressing it when it happens, visit the Fraud.org tax ID fraud guide