How to Avoid Income Tax Refund Theft

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The 2018 tax season has begun, so it’s time to proactively protect your income tax refund. Each tax year, fraudsters claim billions of dollars in fake tax refunds. They create huge losses for the US Treasury and significant delays in return processing for legitimate taxpayers. The more you learn about this challenge, the less likely you are to become a victim.

What Is Tax ID Theft?

Two types of fraud are included under the umbrella of tax identity theft. The first, employment-related identity theft, occurs when a thief uses your Social Security number (SSN) to gain employment. You may not realize you’re a victim until you are asked by the IRS to verify wages you didn’t earn or to explain an income discrepancy. Make sure to check your annual Security Administration wage report at ssa.gov and compare it to your W-2s.

The second type of tax fraud, tax-related identity theft, occurs when someone files a tax return claiming to be you to grab an unearned refund. W-2s are easily faked so thieves only need your name and SSN.

These fraud attempts often occur at the start of filing season because tax-related identity theft can be compared to an annual foot race. The first person to submit a return with your SSN prevents anyone else from filing with that same number. Therefore, if a thief files with your number before you do, your e-filed return will get rejected. You’ll most likely get your refund eventually, but first, you’ll need to complete IRS form 14039 to report tax identity theft. Clearing up tax identity theft can be labor intensive, and the IRS warns the process takes approximately 120 days. Complicated cases can take 180 days or more.

How Do You Protect Yourself?

The best thing to do is guard your SSN diligently. Don’t share it with anyone unless it’s essential. Don’t keep papers containing your number where others could view them. Avoid sharing your SSN with healthcare providers or educational institutions whenever possible. Always ask why it’s needed before you hand it over.

Scammers can be very creative in their efforts to grab SSNs, so be vigilant. Methods include posing as a bogus tax preparer to steal the data or sending out phishing emails posing as an executive who needs W-2s for all workers.

Is There Any Good News?

These scams aren’t going away, but progress is being made every year. The IRS is partnering with tax preparers to stop fraud, and it’s working. Cases of tax identity theft dropped from 700,560 in 2015 to below 400,000 in 2016. In addition to IRS efforts, 2017 saw numerous government enforcement efforts. For example, a major bust in  Florida in early 2017 rounded up 104 individuals involved in tax identity theft. Perhaps this year will bring more arrests and see more scammers spending time behind bars.

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