Each year, thieves try to steal billions in federal tax withholdings by stealing your identity. The IRS is focusing more attention on this quickly growing problem. Now is the time of year for you to be extra vigilant, too.
Early tax filing season is the worst time.
Your federal tax account at the IRS has plenty of money in it from all the taxes withheld from your paycheck during the course of the year. Until you file your tax return, the IRS does not know whether you need to pay more in or they need to refund you the excess amount withheld.
Thieves know this too, and will try to file a fraudulent tax return before you have time to submit your own. By doing this, they can steal some of your tax withholdings and be long gone by the time you file your own tax return. So what can you do?
- File early. The sooner you file your tax return, the less likely a thief will beat you to your refund.
- Get an Identity Protection PIN. All taxpayers who can verify their identity can get an Identity Protection PIN (IP PIN) from the IRS. The IP PIN is a six-digit code known only to you and the IRS that helps prevent identity thieves from filing fraudulent tax returns. If you want an IP PIN, visit irs.gov/IPPIN.
- Check your credit reports. See if there is any suspicious activity on your accounts and on your credit reports.
- Protect your ID. Be suspicious. Always know who you’re giving your Social Security Number to, do not leave your credit card unattended, never give ID information to someone who called you, use the password function on your phone, be aware of strange mail, and shred important documents. Your best defense to IRS ID theft is to use common best practices to protect your information.
The IRS is becoming a better spotter.
If the IRS suspects something is wrong with your filed tax return they will send you a notice. If this happens to you:
- Respond immediately. Get the direct contact information from the IRS website and let them know that you have a possible identity theft problem.
- File an Identity Theft Affidavit (IRS Form 14039). This will record your problem with the IRS and they will take extra steps to ensure your account activity is coming from you and not the ID thief.
- File a police report.
- Contact the credit bureaus.
Having your identity stolen is one thing. Having your tax withholding stolen and then needing to unravel the problem within the IRS is a major hassle. Try to stay vigilant and know that there are steps to help protect your tax records. Is there good news in all this? If the IRS pays out a refund to someone stealing your identity, they are on the hook for this loss, not you.
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.