File Your Tax Returns Early to Reduce the Risk of Tax Identity Theft

While the tax deadline in the U.S. is April 15 for most taxpayers, you should consider filing your returns as early as possible to reduce the risk of identity theft. 

What is Tax Identity Theft? 

“Tax identity theft occurs when someone uses a stolen Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) to file a fraudulent tax return claiming a bogus refund,” says Rob Burnette, investment advisor, professional tax preparer and CEO at Outlook Financial Center. 

The scammer will use stolen SSNs and personal details to prepare a falsified tax return with a sizable refund, then have the IRS send the payment to their own bank account or address. Taxpayers may not notice a crime has occurred until their attempt to file their legitimate tax return is rejected and they receive a notice from the IRS that a return has already been filed using their SSN. 

Tax identity theft can cause major headaches for the victim. The processing of your legitimate tax return, as well as any refund you are owed, could be delayed for months. which is why it's important to report tax fraud right away to the IRS. According to the Taxpayer Advocate Service, a department of the IRS, Identity Theft Victim Assistance (IDTVA) cases take an average of 22 months to resolve. 

How to Avoid Tax Identity Theft

One of the best ways to avoid tax identity theft is to submit your return as soon as you can; the IRS typically starts accepting tax returns in late January. This gives criminals a much smaller window to file a fraudulent tax return using your SSN – once your return is being processed, no one will be able to file a fake return without the IRS noticing. 

There are also some other steps you can take to reduce the risk of tax identity theft:

• Get an IP PIN. “Request an Identity Protection PIN (IP PIN) from the IRS. This is a 6-digit number known only to the taxpayer and the IRS, [confirming] the taxpayer’s identity to the IRS when a tax return is filed, thereby making tax identity theft more difficult,” says Burnette.

• Use secure tax software. If you use tax software to prepare your returns, choose an established solution with strong security, firewalls, and antivirus protection. Enable two-factor authentication for an additional level of security. 

• Keep your tax records safe. Store your tax records, Social Security card, and other important personal documents in a secure location. When you want to dispose of old tax records, shred them before you trash them. 

• Watch out for phishing scams. Ignore requests for information from the IRS via email, text message, or phone call. The IRS will generally contact you by mail for most matters, though a representative may visit your home or workplace in some situations. 

• Vet your tax preparer. If you hire a tax preparer to help you complete your tax returns, verify how they protect your personal information. Check that the tax preparer signed the tax form and entered their preparer tax ID number. Make sure the tax refund is set up to deliver straight to you, not your preparer or another third party. 

What to Do If You Are a Victim of Identity Theft

The clearest sign that you’re a victim of tax identity theft is if your attempt to file your tax return is rejected and you receive a notice from the IRS informing you that someone has already filed a return using your SSN. Other warning signs include receiving income or wage statements, such as W-2 or 1099 forms, from employers you never worked for, or receiving an unexpected tax bill or refund. 

“Too often, the first sign of tax identity theft occurs when an e-filed return is rejected because a Social Security Number on the return has already been used on another return for that tax year. Other signs include getting a letter from the IRS stating multiple returns have been filed in their name, they have a balance due to a tax year they didn’t file, or the IRS shows wages paid by an employer they don’t know,” warns Burnette. 

If someone filed a fraudulent tax return in your name, take the following steps to resolve the issue: 

• Respond to the IRS notice. If you receive a notice about a return already filed using your SSN, respond to the number printed on the notice. You can also request specialized assistance at 800-908-4490.

• File a paper return. You may need to file a paper return because the IRS e-filing system will reject any return with a duplicate SSN. You will also want to complete and send Form 14039, Identity Theft Affidavit, to the IRS. This form can be submitted online, by mail, or via fax.

• Use your IP PIN for future tax returns. If the IRS confirms you are a victim of tax identity theft, it will mail you a CP01A Notice containing a new IP PIN each year, which you can use to verify your identity when you file future returns. 

• Monitor your credit reports. If someone has your SSN and other personal details, they may attempt to open new credit cards or take out loans in your name. Check your credit reports for information you don’t recognize. Instances of fraud should be disputed with the credit bureaus and the company furnishing the information. 

• Freeze your credit reports. You may also want to freeze your credit reports to block criminals from opening new accounts in your name. You will need to lift the freeze whenever you want to submit a legitimate application for credit. You can freeze your credit reports with all three credit bureaus (Equifax, Experian, and TransUnion) for free. 

Time is of the essence

Time is one of your strongest weapons in the fight against tax identity theft. The earlier you file your tax returns with the IRS, the less time criminals have to file a fake return using your identity. Don’t wait until the April deadline to do your taxes – start gathering your information now so you can beat criminals to the punch. 

Frequently Asked Questions

1. What is tax identity theft?
It’s when someone uses your SSN/ITIN to file a fake return and try to steal your refund.

2. Why does filing early help prevent it?
Once the IRS has accepted your return, it’s much harder for a criminal to successfully submit another using your SSN.

3. What are common warning signs?
E-file rejection for duplicate SSN, IRS notice about multiple returns, unexpected W-2/1099s, or a surprise tax bill/refund.

4. What should I do if I’m a victim?
Reply to the IRS notice (or call ID theft support), file a paper return + Form 14039, then monitor and freeze credit if needed.