Tax season is also open season for identity thieves and time for consumers to be extra cautious about safeguarding their data.
The IRS paid out nearly $6 billion in 2013 alone to tax filers who had appropriated someone else’s identity in order to steal their refund, according to the Government Accountability Office.
While the ubiquity of electronic filing has made the tedious annual process more bearable for consumers, it has also made it easier for criminals to scam the system by filing returns using stolen Social Security numbers.
It’s impossible to completely prevent tax-related identity theft, but following these steps can help reduce your risk.
1. Check your credit reports. You’re entitled to check your credit from each of the three major credit-reporting agencies — Equifax, Experian and TransUnion — each year. If you haven’t pulled them recently, do so now to make sure that your Social Security number isn’t attached to unfamiliar credit accounts.
2. Watch the mail carefully. If you’re 1099s or a W-2 that’s delivered by post, don’t let your mail sit in the box this time of year. Such documents typically come with big letters announcing “IMPORTANT TAX DOCUMENTS ENCLOSED.” Those labels are great at making sure that you don’t throw them away — and at alerting crooks who rifle through your mail that there’s valuable info inside. “There are a lot of folks out there who troll mailboxes,” says Adam Levin, chairman of Identity Theft 911.
3. File early. In the classic tax-related ID theft, scammers use your personal information, including your Social Security number, to file a bogus claim for a tax refund, which they collect. Then, when you go to legitimately file your taxes, your claim gets rejected because the IRS thinks it already paid you. More than 20 percent of taxpayers wait until April to file, making them prime targets for ID thieves.
There are procedures to undo the damage, but it’s a paperwork nightmare, and it can take months to undo the damage. In 2013, it took an average 278 days for the IRS to resolve identity theft claims. “By filing early, you can not only get your refund more quickly, but you lock out your personal information so that the bad guys can’t get to it,” says Mark Steber, chief tax officer at Jackson Hewitt Tax Service.
4. Request an IP PIN if you have access to one. For those who have previously been the victim of identity theft, and for all residents of Florida, Georgia and the District of Columbia, the IRS provides Identity Protection Personal Identification Numbers — six-digit numbers that filers can use in place of their Social Security number when submitting their taxes. If you think you’ve been a victim of ID theft, you can also request an IP PIN.
5. Use a secure device and network. E-filing is the quickest and most secure way to send your returns to the IRS, and programs like TurboTax now allow anyone to do their taxes on a computer or tablet from virtually anywhere. That’s incredibly convenient, but users should be careful where they decide to open such programs. Public Wi-Fi is incredibly insecure, and criminals can easily intercept anything sent using it. “Anytime you’re transmitting sensitive information over the Internet you want to be sure that you’re on a private, secure network,” says Maxim Weinstein, an advisor at security vendor Sophos.
6. Dust off the fax machine. You may need a refresher course on how to use it, but for sending W-2 forms, 1099s and other tax-related documents to your accountant or anyone else, the 1990s technology is a safer bet than email. That way, if a hacker gets into your email account at any time in the future, a quick search for old tax documents won’t yield anything. If you don’t have access to a fax machine, sending valuable papers via FedEx or a similar delivery service is also a good option.
7. Turn on two-factor authentication. All the big tax software providers now offer users two-factor authentication at log-in, which is a much more secure way to make sure no one but you enters your account. In addition to requiring a user name and password, two-factor authentication requires another level of security to compete the sign-on process, such as entering a code sent to your email or smartphone.
8. Vet your tax preparer. It’s common for fraudsters to set up shop as tax preparers, gathering documents from unsuspecting clients and then disappearing — with all the victim’s info and without filing a return. Protect yourself by hiring a credentialed tax pro (look for a certified public accountant or an enrolled agent) who has been in business for at least several years. Ask if your preparer has procedures in place to safeguard client data. “You wouldn’t go to a doctor or dentist without first checking them out,” says Todd Simmens, national managing partner of Tax Risk Management at BDO. “You have to do the same thing with your tax preparer.”
9. Consider a credit freeze. If you’re really concerned about someone stealing your ID during tax season, you can ask the credit bureaus to temporarily freeze your credit. Doing so means that no one would be able to open an account in your name.
10. Be skeptical of any tax-related calls or emails. Tax season is prime time for scammers impersonating the IRS to call or email with scary stories about audits or other problems with returns. The callers try to convince victims to provide their Social Security numbers, or to send money or credit card information to pay money supposedly owed to the IRS. Such callers are getting increasingly sophisticated and are often calling from a number that shows on caller ID as being from the IRS.
Keep in mind that the IRS will never ask you over the phone for your identifying information, and you’ll have a chance to respond to any audit if money is actually owed. Generally, if the IRS needs to contact you, they’ll do it via regular old mail.