How to avoid tax identity theft

avoid tax identity theft

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Credit Sesame with tips on how to avoid tax identity theft.

If you spend hours online each day, you’re not alone: On average, we consume more than six and a half hours on the internet daily, according to one study. That creates an ideal environment for criminals seeking to steal your personal information. As tax season approaches, giving special attention to preventing tax identity theft is a good idea.

What is tax identity theft and how does it happen? What damage can it cause and how can you prevent it? What can you do if you are a victim?

What is tax identity theft?

Tax identity theft occurs when someone steals your Social Security Number or other personal information to claim your tax refund for themselves. Criminals can also use your information to apply for a job. This often happens without your knowledge. People often discover that identity theft has occurred when they file their annual taxes. They then learn someone else has filed fraudulent information and claimed the corresponding refund check.

There are several reasons to be aware of tax identity theft. First, it’s among a growing number of ways people can steal your personal information. In 2022, consumer fraud cost Americans approximately $5.9 billion across more than 5.7 million reports of suspected misconduct, according to the Internal Revenue Service (IRS). Stolen information can also create lasting damage to your credit score through no fault of your own.

Monitoring your credit report and keeping track of your tax information means you are alerted to suspicious activity as soon as it happens. You can take steps quickly to protect your finances and your good reputation as a responsible money manager. This is important if you want to apply for a credit card or a loan in the future.

How can criminals steal your tax identity?

Bad guys look for ways to exploit innocent people whose guard is down. This can happen several ways.

A common technique is for criminals to send you fraudulent digital messages. This might happen as a phishing attack, which is when you get a suspicious email that contains a corrupt link or attachment. Clicking the link or opening the attachment can place harmful software onto your computer. Criminals might use this software to watch what you’re doing on your device. They can track your keystrokes, decode passwords and use that information to access your Social Security Number or bank account information. Phishing attacks can also occur via text message to a smartphone or direct message via a social media platform. At other times, data about millions of customers are leaked by hackers from websites you frequent.

Some criminals use a traditional phone call and a sense of urgency to get you to make a decision that’s not in your best interest. For example, someone might call claiming to work with the federal government. They might request your private information, including Social Security Number, after which they can file a fraudulent tax return. Remember that the IRS and other agencies will never call you to request this personal information. Hang up on such calls and report fraud to the authorities.

It’s also possible for criminals to steal information from snail mail. This might include grabbing a tax refund check out of your home mailbox or out of an unlocked P.O. box.

What kinds of damage can tax identity theft cause?

Tax identity theft can harm victims in several ways. In its most extreme form, tax identity theft takes away money that’s rightfully yours. This occurs when a criminal steals the tax refund check you’re owed. It can also happen if a criminal gains access to your bank accounts and removes funds you’ve worked hard to save.

Fraud also hurts your credit. Good credit and high credit scores develop over time with good habits, such as having a good credit mix and paying off balances. But fraud can damage this, such as when a criminal applies for multiple credit accounts in rapid succession. You might also find loans or expenses you never applied for in your name. These fraudulent transactions aren’t obvious to banks and other lenders unless you do the work of undoing the fraud.

Time and effort spent can be a major cost of fraud. You must work with the proper authorities, wait as old accounts are frozen to prevent further fraud, and pause until new accounts are set up so criminals can’t access them. This creates stress and friction in your personal and financial life.

What are some ways you can avoid tax identity theft?

There are many ways to prevent tax identity theft. Make sure you trust the sites where you provide personal details. Avoid oversharing any information that criminals could use. This is especially true for personally identifiable information such as a Social Security Number or financial account details.

Work directly with a trusted tax software platform or with a trusted tax provider to file your taxes via a secure internet connection. Never click on suspicious links or attachments. Don’t ever give out personal information if someone requests it over the phone. Learn how to report suspected fraud to protect yourself and others who might be victimized later.

Always check your mailbox regularly, or ask a friend to help if you are away. Keep your P.O. box locked when you are not present.

Consider purchasing affordable identity theft insurance. You get financial protection plus guaranteed help from trusted experts to manage the time-consuming post-theft recovery process.

What are your options if you are the victim of tax identity theft?

If you believe a criminal has committed tax identity theft, report it immediately to the Federal Trade Commission via the form at IdentityTheft.gov. During this process, file a fraud report. Provide answers to the website’s questions, which results in an affidavit confirming fraud has occurred. Access your personalized fraud recovery plan, which the website provides, to determine the next steps, secure your information and finances, and get back to normal as quickly as possible.

Assuming you hold identity theft insurance, contact your insurance agent and they can instruct you on next steps. Typically, they take care of all the paperwork, phone calls and emails needed to get you back in good standing financially.

If you have evidence a criminal is actively using financial accounts gained via fraud, get those accounts frozen. Contact your bank or credit card institution to suspend those cards so you can set up fresh accounts criminals can’t access.

Where can I find more information on how to avoid tax identity theft?

For more helpful information on preventing tax identity theft, visit the Federal Trade Commission’s Consumer Advice website. You can also see the latest statistics on identity fraud in the U.S. via the Identity Theft Tax Refund Fraud ISAC – 2022 Annual Report.

What should you do next?

Be aware that tax identity theft is common and growing as our world becomes digitized. Download the free Credit Sesame app to monitor your credit report and credit score. Research identity theft protection services and determine if it’s an investment that makes sense for you. If you suspect fraud, report it to the proper authorities. Encourage your family and friends to protect themselves.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Nate Birt
Nate Birt is a personal finance writer with 15 years of experience as a journalist, business leader, and social impact executive. His company, Silver Maple Strategies, helps clients unlock the power of persuasive storytelling to capture imaginations and secure investment.

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