How to Protect Your Tax Refund From Getting Stolen U.S.News & World Report Thursday, April 2, 2015
Tax refund fraud is easy, lucrative and becoming increasingly popular among criminals. In 2014, the IRS lost an estimated $6.5 billion in fraudulent tax refunds, and this year's losses are expected to be even higher.
The IRS won't have data on this year's federal tax refund theft until after tax season is over, but IRS Commissioner John Koskinen said last month the agency has been intercepting more suspected fraudulent refunds than in past years.
Tax refund theft and fraud has become so prominent, some states suspended electronic state filings because of a sharp increase in fraudulent returns. In February, TurboTax, the most widely used tax software, stopped the filing of state returns for about 24 hours because of suspected fraud.
"Tax refund fraud is an industrywide problem, fueled by recent high-profile data breaches," says U.S. News My Money blogger Lisa Greene-Lewis, a certified financial planner and TurboTax expert. "TurboTax has taken additional actions to protect customers from fraud, including adding multifactor authentication."
How Thieves Commit Tax Refund Fraud
The two most common ways thieves commit tax refund fraud is by filing a tax return using your Social Security number or stealing your tax refund check out of the mail. Social Security numbers are surprisingly easy to come by; criminals can find them by going through your mail, phishing, malware or physically stealing your wallet or purse.
Once a fraudster has your Social Security number, he just needs your name and birth date to file a fraudulent tax refund in your name. The IRS doesn't receive employers' wage data until late spring, so fraudsters can file a return using false W-2 information before the IRS notices a discrepancy. By the time the agency catches up, it's often too late to recover the funds.
Often, taxpayers aren't aware the fraud has happened until they go to file taxes and learn a return has already been filed in their names. Sometimes it can take weeks or months to resolve the issue.
Despite advancements in security measures from the IRS and companies that make tax filing software, taxpayers themselves can provide the best defense against tax refund fraud. Here are five ways filers can protect their tax information and refunds from getting stolen:
1. Have your refund direct deposited.
This year, many taxpayers have opted to have their refunds issued via prepaid debit cards. These debit cards offer the unbanked and underbanked a way to access their refunds without paying high check-cashing fees. but thieves use them because they are difficult to track.
Taxpayers can protect their refunds by having them direct deposited into their bank accounts instead of using a prepaid debit card. Not only is this the safest way to issue your return, it's also the fastest. According to the IRS, taxpayers who opt to e-file and direct deposit can get their refunds in as few as 10 days.
Note that the IRS has new direct deposit limitations this year: No more than three refunds can be deposited into a single account. This is difficult for most taxpayers to exceed, unless the household has multiple adults who file separately but share one bank account.
2. Take your tax conversations offline.
You might want to think twice before taking your tax gripes to social media. Even if you have privacy settings turned on, social media sites
are still public outlets and you never know who is listening.
Greene-Lewis recommends a few steps to protect yourself online: "Use strong passwords, a combination of letters, numbers and characters, and change them frequently. Create a different username and password for each online account, and be judicious posting personal information on social media."
Something as innocuous as admitting you still haven't filed your refund could tip fraudsters to the fact there's still time to file a fake return in your name. So until April 15, just stick to posting cat videos or debating whether #TheDress is blue and black or white and gold.
3. File as soon as possible.
The best way to keep fraudsters from filing a fake return in your name is to beat them to it. File your taxes as soon as you receive your W-2s, 1099s and other tax forms. Many companies offer to have these documents delivered via email, which cuts down on waiting time and keeps your sensitive information out of the mail delivery system.
4. Track your refund.
Taxpayers can get up-to-date tax refund information using Where's My Refund? at irs.gov/Refunds or the IRS2Go mobile app. Both services help protect refunds from getting stolen in the mail or sent to the wrong bank accounts or home addresses.
E-filed returns can be tracked within 24 hours of filing, and paper returns take four weeks to show up in the tracking system. Where's My Refund? is updated every 24 hours. You'll need your Social Security number or taxpayer ID number, filing status and exact refund amount to track your refund.
5. Get an identity protection PIN.
The most notable step the IRS has taken to protect taxpayers against tax refund fraud is the rollout of an identity protection PIN. Qualifying taxpayers who want to e-file their taxes must use a PIN number, which helps the IRS verify identities.
To get a unique PIN number, simply visit the IRS website or call 1-866-704-7388. You will be asked for information from last year's tax return and can then select a six-digit PIN to file your return. The PIN is only good for one tax year, so the IRS will send you a new one in December.
What to Do If You're a Victim of Tax Refund Fraud
If you think you're a victim of tax refund fraud. fill out IRS Form 14039 to alert the agency right away. Not only do you want to ensure your return is filed as soon as possible, but you also want to help the IRS track fraudulent activity in real time.
When you fill out Form 14039, titled "Identity Theft Affidavit," you will be required to provide a copy of your government-issued identification. If you received a notice from the IRS regarding a suspected fraudulent return, also include a copy of that notice with Form 14039. You can mail or fax all the documents to the IRS.
You might also want to freeze on your credit reports with all three major credit bureaus, and the Federal Trade Commission recommends filing a complaint as well as an identity theft report with your local police department. The IRS suggests contacting your financial institutions, closing any vulnerable accounts and checking your Social Security earnings statement annually.
Morgan Quinn is a writer for GoBankingRates.com. a leading source for the best savings account rates, CD rates, personal finance news and more.
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