If a thief gets access to your Social Security card or other personal information, they could use it to file taxes in your name. By falsely claiming a tax refund, they would leave you unable to file your own taxes. You would also be at risk of owing the Internal Revenue Service (IRS) money when the agency discovers that you weren’t entitled to the refund that was claimed.

Tax identity theft is common and can have serious consequences, but taxpayers can take steps to avoid it. This guide will explain how tax-related identity theft works and what you can do to keep yourself safe.

How does tax identity theft happen?

Tax identity theft occurs when someone uses your Social Security number (SSN) or other tax identification to file a fraudulent tax return.

These fraudsters then claim a tax refund they aren't really owed. The IRS sends the refund via mail to an address that isn't yours or deposits it into a bank account that the thieves can access and you can't. Eventually, when the theft is discovered, the IRS could try to collect the money from you.

Thieves can steal your SSN in many different ways:

• Obtaining it from a data breach: If a company has your SSN on file and they are hacked, scammers could access this information and use it to file a fake tax return.
• Obtaining it through discarded papers: If you don't keep your personal information secure when you throw away documents with your SSN on them, a thief could steal your details.
• Obtaining it through a scam: Fraudsters could trick you into giving out your SSN by pretending to be from the IRS, a company you do business with, or another government agency.

Once a scammer has your SSN, it's relatively easy for them to e-file a fake tax return with your details on it.

Tax ID theft warning signs

There are many red flags that could suggest your tax information has fallen into the wrong hands and a fraudulent return has been filed on your behalf. Here are some of the biggest warning signs:

• Receiving a letter from the IRS asking you about suspicious tax forms that were filed but that you did not submit
• Being blocked from electronically filing your tax return and receiving a message that you can't move forward due to a duplicate of your Social Security number
• Getting a tax transcript from the IRS in the mail even though you didn't ask for one
• Receiving an IRS notification that says an online account was created for you or that your online account has either been accessed or disabled — even though you didn't create an account or make any changes to an existing one
• Getting notice from the IRS indicating you owe more taxes or that you have had a refund offset (had taxes taken out of your refund) even if you don't owe money
  
• Receiving an IRS notification stating that collections actions have been initiated for a tax year when you did not actually file a return
• Seeing IRS income tax records indicating that an employer paid you wages or provided employment benefits to you — even though you never actually worked for that company
• Receiving an Employer Identification Number (EIN), also known as a federal tax identification number, without requesting one

What if my tax identity has been compromised?

If you suspect your tax information has been compromised, there are a number of steps you can take.

The IRS usually catches tax fraud and sends you a letter either confirming your identity or confirming you filed a return. You may receive Letter 5071C, Letter 4883C, or Letter 5747C. If you do, follow the instructions within the letter ASAP.

You can also report suspected identity theft to the IRS by emailing or faxing IRS Form 14039, Identity Theft Affidavit. You can request a copy of the suspected fraudulent return by following the IRS instructions online. Based on these instructions, you should complete Form 4506-F, Request for a Copy of a Fraudulent Tax Return, and send it to the IRS via mail or fax.

Because tax identity theft occurs when your SSN is compromised, you may want to take other steps to protect yourself as well:

• Freeze your credit so your SSN can't be misused for other things like opening credit accounts in your name.
• Change your passwords on your online accounts.
• File an identity theft report with the Federal Trade Commission (FTC) and create an identity theft recovery plan at identitytheft.gov.

How to prevent future tax identity theft

To prevent tax identity theft, it's important to try to keep your information from falling into the wrong hands. There are a number of steps you can take to do that:

• File your tax return early: If you file a return before an identity thief does, then they will be prevented from submitting another return using your information.
• Use security software: Antivirus software or malware protection as well as a firewall can help stop your information from falling into the wrong hands.
• Protect sensitive online data: You can use an encryption program when transmitting sensitive information. You may also want to use a virtual private network (VPN) when viewing financial documents or accounts online.
• Create strong passwords: You may want to use a password manager to create different secure passwords for each website you use.
• Take advantage of multi-factor authentication: This is especially important for tax preparation software accounts, like TurboTax. You must first log in with a password and then receive a code sent via text or email to verify your identity. This creates another layer of security for your accounts.
• Avoid phishing scams: Phishing emails are sent out with the goal of obtaining your personal details. The emails are sent from fake companies or government agencies that may look legitimate at first glance. The goal is to trick you into handing over your information. It's particularly important to be aware of IRS email scams.
• Get an identity protection pin: An identity protection pin, also known as an IP pin, is an extra layer of protection for your tax account. It’s a six-digit number that is known only by you and the IRS and it is renewed every calendar year.
• Follow safe online banking practices: Do not log in to your bank accounts or other financial institution accounts on public computers or while using unsecured Wi-Fi networks.

These steps can help prevent tax identity theft and keep your personal details secure from other types of identity theft. You can also look into identity theft protection services, some of which will notify you if your data was involved in a breach.

Tax identity theft FAQs

Bottom line

Tax identity theft can have severe consequences, but you can prevent it by keeping your information secure. The IRS is also available to help if you are a victim of tax-related identity theft. Reach out ASAP to avoid receiving a tax bill for a refund someone fraudulently claimed using your details.

In addition, you should review our identity theft protection guide to make sure you're following current best practices for keeping your personal and financial information safe from anyone who may want to misuse it.

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Author Details

Christy Rakoczy

About the Author

Christy Rakoczy is an identity theft expert with more than a decade of experience writing about cybersecurity issues and laws surrounding identity fraud. She has a law degree from UCLA and is a former college instructor who taught courses focused on legal issues surrounding internet privacy.