Update, Jan. 9: The IRS confirmed that it will process tax returns on time starting Jan. 28 despite the shutdown of the federal government. Refunds should go out as scheduled.
For most Americans, the deadline to file tax returns with the IRS is April 15. But there is one big reason you may want to file your taxes as early: avoiding identity theft.
Every tax season, criminals attempt to file fraudulent returns and claim refunds in the name of taxpayers. The longer you wait to do your taxes, the more time you’re giving scammers to commit tax identity theft.
What is tax identity theft?
Criminals file a falsified tax return using another individual’s Social Security number and try to claim a refund. Once they receive a refund electronically or in the mail, they’ll convert it into cash to cover their tracks.
Since many taxpayers wait until April to file their tax returns, they won’t realize there’s a problem until much later, when the IRS notifies them that a tax return has already been filed using their Social Security number.
“If you received a letter from the IRS asking you to verify if you’ve filed your return, and you haven’t, then you’ve probably been a victim of identity theft,” said Josh Zimmelman, owner of Westwood Tax & Consulting.
Your SSN and other personal information can be obtained in many ways. Criminals may try to trick you into providing information through phone or email phishing scams or steal personal information through a data breach, said Adam Levin, co-founder of identity protection company Cyberscout.
How to avoid tax identity theft
One of the best ways to thwart thieves is to file your taxes as soon as possible — as early as January, if you are able. This gives criminals a much smaller time window to successfully file a tax return in your name.
The IRS provided several other ways to avoid tax identity theft:
- Using secure software with firewall and antivirus protection
- Using strong, unique passwords for all your online accounts
- Ignoring requests for information from incoming emails or phone calls, even if they claim to be from the IRS
- Avoiding links or attachments from unverified emails
- Taking extra measures to protect your personal information
- Purchasing indentity theft insurance
Tax preparers are also vulnerable to scams, so you can’t assume that you’re safe just because you pay a professional to prepare your taxes.
Zimmelman said if you are using a tax professional, to make sure they’ve signed the tax form they prepared and entered their preparer tax ID number. In addition, they should provide your contact information and bank account number — if you are using direct deposit — on the tax return for your refund.
“Your tax refund should always go directly to you, not to your accountant or tax preparer,” he said.
Remember, the IRS will never contact taxpayers by email to demand payment or request personal or financial information. While there are a few special cases in which the IRS may call or perform home or office visits, you will receive written notice ahead of time. Calls and emails claiming to be from the IRS should be ignored as a general rule.
What to do if you’re a victim of tax identity theft
If someone has already filed a tax return using your Social Security number, the IRS will send you a written notice, and you should call the number provided or visit the official IRS website to learn how to report the issue. You’ll also want to complete Form 14039, the Identity Theft Affidavit, and send it to the IRS according to the instructions.
Other signs that you’ve been a victim of tax identity theft may include notices of additional taxes or income records from employers you don’t work for. Zimmelman said if you receive a tax refund you weren’t expecting, you should contact the IRS.
Also, “If you’ve received a W-2, 1099, or other document from an employer that isn’t your employer or about income earned that isn’t yours, then someone may be using your [SSN] or contact information without your consent,” he said.
Besides reporting the incident to the IRS, you should file a complaint with the FTC, request your credit reports and place a credit freeze on them (it’s free) and contact your financial institutions. (Here are some other options if you've been tax-scammed.)
If you suspect you are a victim of tax identity theft, you still need to pay your taxes and file your tax return, even if a paper return is necessary. Claiming a fraudulent tax return can come back to haunt you, so report any tax refunds you receive that you weren’t expecting.