Protecting Yourself from Social Security Theft and Fraudulent Tax Returns What to Do If It Happens to You
- Chris Torres, CPA
- 5 days ago
- 4 min read
In the digital age, social security theft and fraudulent tax returns are urgent threats. Every year, millions of people fall victim to identity theft, resulting in significant financial losses. In fact, the Federal Trade Commission reported that 1.4 million Americans were victims of identity theft in 2022 alone. The good news is that by being informed and taking action, you can protect your personal information and react properly if you become a victim. This post will explain what social security theft is, how it connects to tax fraud, and the steps you can take to safeguard your financial wellbeing.
Understanding Social Security Theft
Social security theft happens when someone steals your Social Security Number (SSN) and uses it for financial gain or illegal activities. Often, this results in tax return fraud, where the thief files a tax return under the stolen SSN, claiming refunds that belong to the original taxpayer.
The consequences can be severe. Victims may face delays in receiving their tax refunds, complexities with their tax filings, and even legal troubles if they are mistakenly accused of fraud. A 2021 report showed that over $5.8 billion in tax refunds were fraudulently claimed, largely due to social security theft. Recognizing this imminent risk is crucial to your financial protection.
The Mechanics of Fraudulent Tax Return Fraud
Tax return fraud is a growing concern, particularly during tax season. Criminals take advantage of the increased activity when taxpayers are filing their returns. By filing a fraudulent tax return using stolen SSNs and fabricated information, they can extract refunds that are not theirs. For example, a thief can easily claim a refund based on a fabricated income of over $100,000, which can result in refunds exceeding $20,000.
Fraudulent schemes often stem from data breaches or phishing attacks, where personal information is attained illegally. Remaining aware of the warning signs is vital for every taxpayer, especially during peak filing periods.
Signs You May Be a Victim of Fraudulent Returns
Identifying tax return fraud early can save you from significant financial damage. Here are key indicators to watch for:
Unexpected IRS Notices: Receiving mail from the IRS indicating that multiple tax returns were filed under your SSN is a major alert. In 2022, over 30% of taxpayers reported receiving notices they didn’t expect.
Delayed Refunds: If you usually get your tax refund within a specific timeframe and face unexplained delays, consider investigating further. Data from the IRS shows that over 80% of taxpayers receive their refunds within 21 days under normal circumstances.
Unfamiliar Income Records: If you see wages or other income you don't recognize reported to the IRS, this is often a clear sign of identity theft. The best way of identifying these items would be by requesting an IRS transcript on IRS.gov.
How to Protect Yourself from Social Security Theft
Taking steps to secure your personal information can prevent theft before it happens. Here are effective strategies to consider:
1. Secure Personal Information
Store sensitive documents in a safe place, such as a locked drawer or safe, and shred any documents you no longer need. Be cautious about disclosing personal details online or through phone calls, especially to unknown sources.
2. Use Strong Passwords
Create strong, unique passwords for all your online accounts. Aim for at least 12 characters, mixing letters, numbers, and symbols. Tools like password managers can enhance your security, while enabling two-factor authentication provides an extra layer of protection.
3. Monitor Your Financial Accounts Regularly
Review your bank statements and credit reports frequently to identify any suspicious activities. Reports suggest that you check these at least once a month to catch problems quickly.
4. File Your Taxes Early
By filing your tax return early in the season, you decrease the chance of thieves filing fraudulent returns in your name. Over 2 million fraudulent returns were reported filed as early as January in previous years. We have had clients file taxes later in the season, but someone filed a return using their social security number. In this case, we attempt to re-file the return electronically, but if it gets rejected, then you need to file a paper return. Once filed, you need to prove to the IRS that you are in fact the SSN holder and the whole thing can be a headache that you should not be in. We have helped clients in these situations.
5. Consider a Credit Freeze
A credit freeze effectively blocks potential lenders from accessing your credit report, making it harder for identity thieves to open accounts in your name. The Federal Trade Commission asserts that this can stop identity theft in its tracks.
What To Do If You Are a Victim
If you believe you have been a victim of social security theft or tax return fraud, swift action is essential. Here's what to do:
1. Notify the IRS
Reach out to the IRS immediately to report your suspicions. Fill out IRS Form 14039, Identity Theft Affidavit, to formally report the issue.
2. File a Police Report
File a report with your local police department. This report can help document the incident and assist in clearing your name if needed.
3. Contact Credit Bureaus
Inform major credit bureaus (Equifax, Experian, and TransUnion) about the identity theft. They can provide you with a credit report and assist in placing a freeze on your account.
4. Monitor Your Accounts Regularly
Keep a vigilant eye on your financial accounts to ensure no unauthorized activities occur after the theft.
5. Use Identity Theft Protection Services
Consider enrolling in an identity theft protection service that actively monitors your personal information and alerts you of any suspicious activities.
Staying Vigilant in the Future
Preventing social security theft and tax fraud requires continuous diligence. Regularly review your financial habits, keep informed about potential scams, and stay cautious with your personal information.
Educating friends and family about these issues is equally important. Community knowledge can be a powerful tool against identity theft, reducing the overall risk for everyone involved.
Final Thoughts
Social security theft and fraudulent tax returns are serious threats that can impact anyone. By implementing preventative measures and remaining alert, you can greatly reduce your chances of becoming a victim. If you do find yourself affected, act swiftly and strategically to minimize the damage and restore control over your information.
Awareness is your best protection. Together, let us create a safer environment against identity theft, ensuring that your hard-earned money stays where it belongs—safe with you.
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