When it comes to filing income tax returns, there tend to be two different kinds of people: those who file as soon as they have all the information they need in order to get it over with quickly, and those who procrastinate and wait as long as possible to file.
If you’re usually a procrastinator, it might make sense this year to join the early-filers camp – for reasons more than just ticking off the tax box. Doing so could help you avoid becoming a victim of tax-related identity theft, also known as tax refund fraud.
What is Tax Refund Fraud?
Tax refund fraud involves criminals using stolen personal information (including Social Security numbers) to file forged tax returns and then pocket tax refunds themselves, leaving the legitimate tax payer on the hook. Last year, data breaches (such as the Equifax one) compromised millions of Social Security numbers, so the amount of fraud is likely to increase this year. And tax refund fraud tends to spike early in the tax-filing season because thieves need to act quickly before victims have filed legitimate returns.
Hundreds of thousands of taxpayers are victimized by tax refund fraud each year. Last year, the IRS started a new program in which they issue a special identity protection PIN (or IP PIN) to some taxpayers who have been victimized by tax refund fraud in the past. This six-digit code must be entered when a tax return is filed electronically. The IP PIN program is currently being piloted by the IRS and is available to taxpayers in select states.
Fraud Prevention Steps
Despite these efforts, the risk of tax refund fraud is still very real. One of the best ways to protect yourself is to file your federal income tax return as soon as you have all of the documents you need, instead of waiting until close to this year’s tax-filing deadline of April 17 since it reduces the window of opportunity for fraudsters to file a fake return in your place. Other fraud prevention steps include the following:
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