How to Prevent Tax Identity Theft

Last year tax identity theft affected 1.1 million taxpayers. Use these tips to prevent someone from stealing your identity and filing a fraudulent return

Every year millions of taxpayers look forward to tax season as a nice fat tax refund is waiting to enter their bank accounts.

But for an increasingly large group of tax filers, tax season can be a scary time. Every year, more and more people become the victims of tax identity theft – their names and Social Security numbers were stolen and fraudulent returns are filed under their names.

Not only do criminals now possess these unfortunate filers’ personal information – with which they can do any number of dastardly things – but these people also have their tax returns rejected by the IRS because every Social Security number can only be used once. They then have to print out their return out, fill out a lot of extra paperwork, and mail it all to the IRS, which slows the process down considerably. Many have to wait months, even upwards of a year, before they get their refunds.

In 2008, there were 51,700 cases of identity theft-related tax fraud. In 2011, that number was over 1.1 million.

So even if you’ve never had your identity stolen, you still need to be vigilant about taking preventive measures. Don’t think it can’t happen to you. Following these steps will save you a lot of hassle and heartache:

1. File as early as possible – There really is no substitute for this when it comes to preventing fraud. If you wait until April 15th to file, you’re giving a potential fraudster a whole three months to steal your identity. If you file right when e-file starts on January 22nd, or better yet file even earlier when RapidTax starts preparing returns on January 3rd. The earlier you file, the less opportunity someone has to steal your refund.
2. Use your IP PIN – The IRS has a program that involves giving special Identity Protection Personal Identification Numbers for victims of identity theft. This number adds an additional layer of security, making it even harder for someone to steal your identity.
3. Call the IRS Identity Protection Specialized Unit – Do you believe your personal information may be at risk due to a lost or stolen purse or wallet, questionable credit card activity, or credit report? Alert the IRS’s Identity Protection Specialized Unit by calling 1-800-908-4490.
4. Protect your SSN – Be as careful as you can with your Social Security number. Don’t carry your Social Security card in your wallet, and only give it out to businesses when it is absolutely mandatory.

If your identity already has been stolen (and your return rejected by the IRS) refer to this post about what to do when your SSN number gets stolen and a fraudulent return filed in your name.

Again, the best way to prevent identity theft is to file your return as soon as possible.