Tax Identity Theft: What Is It, How Does It Happen, and What To Do If It Happens To You 

Tax season is here, and that means while you are taking time to file your return and receive a refund, identity thieves are in the shadows working hard to cash in by filing a false return using stolen personal information. 

Tax season is prime time for identity thieves, with tax identity fraud making up 12% of the top five reported types of fraud, according to the FTC.¹ It’s become so widespread that the IRS releases an annual list dubbed the “Dirty Dozen,” with many of the top scams being used to steal money from taxpayers. Phishing – when fraudsters attempt to obtain your data via email, text, or instant message by posing as a trusted company – topped 2019’s “Dirty Dozen” list.

What is tax identity theft? 

Understanding tax laws and paperwork can be complicated, but tax identity theft is simple. Tax identity theft occurs when someone uses your personal information, such as your Social Security number or W-2 form, to file a fraudulent tax return and claim your refund. 

How does tax identity theft happen?

Tax identity theft is often discovered when a taxpayer tries to file their tax return and it gets rejected because someone else has already filed a falsified return. Also, fraudsters will usually request a rapid refund to receive money from a tax preparer before the IRS has a chance to pay it out directly. 

So how would your personal identifying information get in the hands of thieves in the first place? Here are three common ways:

1. The Dark Web: Tax identity thieves buy your Social Security number, date of birth, or other personal information compromised in a data breach.
2. Redirected U.S. Mail: This happens when fraudsters reroute your mail to a different address to receive your W-2 form.
3. Personal Theft: Your Social Security number is stolen from your car, home, or wallet.

What if tax identity theft happens to you? 

Tax identity theft is a violation of your information and peace of mind, and the process to resolve it can be long, frustrating, and painful. Here are four things to consider if hackers get a hold of your data and commit tax identity fraud.

1. Time: If the fraudster forwards your mail, you will need to work with the U.S. Postal Service to cancel your change of address redirection, which can require a lot of time and back and forth communication.
2. Reports: You will have to work with the IRS to report the fraud, which can be a drawn-out process. In addition to the IRS, you will also have to file a police report.
3. Credit Bureaus: You will need to freeze your credit reports with all three major bureaus and also monitor your reports for other signs of identity theft. Chances are, if your information was used in a tax identity theft scheme, it could mean that the criminals have more identifying information and will find other ways to misuse your name and data.
4. Cost: If you are counting on a tax refund and it’s stolen, it could take months for you to get your money back, and that’s if you’re able to recover the losses at all.

What Can You Do Now?

You can let IDSeal take care of dealing with tax identity theft for you. With IDSeal, restoring your identity is easy. As a part of our comprehensive identity protection solution², our team of restoration experts helps taxpayers like you resolve the identity theft and tax fraud that happens every year. 

If your identity is stolen, with IDSeal you are assigned a dedicated restoration specialist to work with you and on your behalf with a limited power of attorney to resolve your case and get your life back on track. 

There’s no way to 100% stop tax identity theft, but there are things you can do to help prevent it. Start with these eight tips:

1. File early. If you file before an identity thief does, they will most likely get rejected.
2. Don’t use public Wi-Fi to file your taxes. Hackers often set up listening posts on open Wi-Fi connections to steal information. If you need to use public Wi-Fi, connect to a VPN to create a private tunnel between you and the tax preparation website.
3. Screen calls. Be suspicious of anybody calling pretending to be the IRS, a common trick used by fraudsters to collect your personal information.
4. Be on the lookout for fake tax preparation websites. Only file with an accountant or tax website you trust.
5. Fill out a change of address form as soon as you move and update your address with your employer to prevent mail with sensitive information being delivered to an old mailbox you can no longer access.
6. Go paperless. Send your W-2 and any other bills with personal information electronically. 
7. Use secure passwords for online filing. If you use simple passwords or the same passwords across multiple sites, a fraudster can use a breached password to log in and access your previous tax returns, which can easily be used to commit fraud.
8. Consider IDSeal. IDSeal’s Change of Address Monitoring feature will alert you if a fraudster reroutes your mail, which could be a sign of W-2 form theft.

When you sign up for IDSeal, you can live confidently knowing that if your tax return is stolen, you won’t be alone in the recovery process.

To learn more about IDSeal, visit https://www.idseal.com/#how-it-works

¹Source: Federal Trade Commission, Consumer Sentinel Network.

²It is not possible to prevent all identity theft or cybercrime, or to effectively monitor all activity on the internet. IDSeal cannot and does not guarantee complete protection against cybercrime or identity theft. IDSeal does not monitor the activities of all financial institutions, or all activities of any particular financial institution. Review the IDSeal Terms & Conditions for specific details regarding IDSeal services.