How to protect yourself from tax identity theft

[UNITED STATES] Tax identity theft is one of the fastest-growing crimes in the United States, affecting millions of taxpayers each year. In an era where personal information is increasingly stored and shared online, it has become easier for criminals to access your financial data, file fraudulent tax returns, and steal your refund. This can cause significant financial damage and put your personal finances at risk. However, there are steps you can take to protect yourself and reduce the risk of falling victim to this crime.

As someone who has experienced the frustration and stress of tax identity theft firsthand, I want to share my personal journey of how I successfully protected myself and what you can do to safeguard your tax information. By following these steps, you can avoid becoming a victim of tax fraud and take control of your financial security.

Before we dive into how to protect yourself, it’s important to understand what tax identity theft is. In simple terms, it occurs when a thief uses your personal information, such as your Social Security number (SSN), to file a false tax return and claim a refund in your name. The thief may file the return before you have a chance to submit your legitimate tax filing, which often results in your refund being stolen.

The Growing Threat of Tax Identity Theft

The rise of digital transactions and online storage of personal information has made tax identity theft a growing concern. According to the IRS, tax identity theft cases have been on the rise, with thousands of people being affected every year. In 2019 alone, the IRS reported over 200,000 cases of fraudulent tax returns being filed using stolen identities.

"The IRS has been working tirelessly to combat tax identity theft, but criminals are becoming increasingly sophisticated in their tactics." This highlights the growing threat of tax fraud and underscores the need for taxpayers to take proactive measures to protect their identities.

How to Protect Yourself from Tax Identity Theft

Now that we understand what tax identity theft is, let’s explore the steps you can take to protect yourself from falling victim to this crime. From setting up safeguards with the IRS to adopting stronger security measures in your day-to-day life, here are the best ways to protect your personal and tax information.

1. Use an IRS IP PIN

One of the most effective ways to protect your tax identity is by using an Identity Protection PIN (IP PIN) from the IRS. An IP PIN is a six-digit number assigned to you by the IRS that is used to verify your identity when filing your tax return. This PIN prevents criminals from filing false returns in your name, even if they have stolen your Social Security number.

“The IP PIN is one of the most powerful tools available to prevent tax identity theft, and the IRS has been expanding its availability to all taxpayers.” The IP PIN acts as an additional layer of protection against fraud, ensuring that only you can file your tax return.

How to Get an IP PIN

Getting an IP PIN is simple, and it’s free. You can apply for one through the IRS website. The application process involves verifying your identity through the IRS’s secure online portal. Once approved, the IRS will send your IP PIN to your address, and you’ll need to use it when filing your tax return each year.

Pro Tip: The IRS issues a new IP PIN every year, so make sure to keep track of it and update it when necessary.

2. Monitor Your Credit Regularly

A critical aspect of protecting yourself from tax identity theft is monitoring your credit report regularly. Tax fraud often begins with a thief gaining access to your personal information through credit card fraud or identity theft. By keeping a close eye on your credit reports, you can quickly detect any suspicious activity or unauthorized accounts opened in your name.

You can request a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year through AnnualCreditReport.com. Make sure to review your report carefully for any unfamiliar accounts or inquiries.

3. Keep Your Personal Information Secure

Keeping your personal information secure is a key step in preventing tax identity theft. This includes safeguarding your Social Security number, tax documents, and any other sensitive financial information. Here are some tips for securing your personal data:

Shred documents: Don’t just throw away your tax documents. Shred any paperwork that contains personal information, including your SSN.

Use strong passwords: Make sure that any online accounts, especially those related to finances, are protected by strong passwords. Avoid using easily guessable passwords like your name or birthdate.

Be cautious with emails and phone calls: Be wary of phishing scams and unsolicited requests for personal information. The IRS will never call or email you asking for sensitive information.

4. Enable Two-Factor Authentication (2FA)

Two-factor authentication (2FA) adds an extra layer of security to your online accounts, including your email, tax software, and financial institutions. With 2FA enabled, you’ll need to verify your identity using two methods—such as a password and a one-time code sent to your phone or email—before accessing your account.

Enabling 2FA significantly reduces the risk of unauthorized access to your accounts and helps protect your personal data from cybercriminals.

5. File Your Tax Return Early

One of the most effective ways to prevent tax identity theft is by filing your tax return as soon as possible. Criminals often wait until the tax filing deadline to submit fraudulent returns, hoping to claim refunds before the legitimate taxpayer has a chance to file.

By filing your return early, you’ll reduce the likelihood of someone else using your SSN to claim a refund. Additionally, if your return is rejected because of fraud, you can work with the IRS to resolve the issue before it becomes a bigger problem.

6. Use Tax Preparation Software with Enhanced Security Features

When filing your taxes, it’s important to use tax preparation software with enhanced security features. Many modern tax software programs use encryption to protect your personal data and have additional security measures, such as fraud detection tools, to prevent identity theft.

Some software programs also allow you to file your tax return securely and even use 2FA to add an extra layer of protection. Be sure to research and choose a reputable tax software provider that prioritizes data security.

7. Report Suspicious Activity Immediately

If you suspect that your tax identity has been stolen or that someone has filed a fraudulent tax return in your name, it’s essential to act quickly. The IRS has a dedicated Identity Theft Protection Program that can help you resolve issues related to tax identity theft.

Contact the IRS: You can call the IRS Identity Protection Specialized Unit at 1-800-908-4490 to report any suspicious activity.

File a police report: In some cases, it may be necessary to file a police report if your identity has been stolen. This report can be helpful when dealing with creditors or the IRS.

Tax identity theft is a serious issue that can lead to significant financial consequences. However, by following these proactive steps, you can protect your tax information and reduce the risk of becoming a victim. From obtaining an IRS IP PIN to monitoring your credit and securing your personal data, taking action now can save you time, money, and stress in the future.

“The IRS continues to implement new tools and resources to help taxpayers protect their identities, but the best defense is still a proactive approach.” By taking these steps, you can safeguard your personal and tax information and enjoy greater peace of mind when filing your taxes.

Remember, the sooner you take action, the less likely you are to become a victim of tax identity theft. Protect yourself, and you’ll have one less thing to worry about during tax season.