Tips to help avoid tax fraud and prepare for tax season
Tax season is upon us once again, and that means millions of Americans are preparing to file tax returns in hopes of collecting a refund. Unfortunately, tax season can also be an opportunity for cybercriminals to use stolen personal information to commit tax identity fraud. With access to information like your Social Security number, cybercriminals can submit a fraudulent tax return to try to steal your refund before you have a chance to file.
To help protect yourself against tax-related identity theft, it’s advisable to try to file your taxes early. Read on for answers to some common tax questions to help you prepare to get a jump on tax season and help lessen the risk of tax fraud.
How should I prepare to file my taxes?
Whether you’re working with a tax professional or filing on your own, having your tax records organized can make the process much easier. You’ll want to gather all documents that demonstrate proof of income, expenses that could potentially earn you a deduction or tax credit, and proof of any estimated taxes you paid throughout the year. Keeping these documents organized could help you avoid making errors that might result in processing delays or missed deductions.
Start by gathering your Social Security number (plus those of your spouse and dependents, if applicable), as well as other tax records, including:
● W-2 from your employer(s)
● 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, pension, annuity or retirement plan distributions
● 1099-K, 1099-MISC, W-2 or other income statement if you worked in the gig economy
● 1099-INT if you were paid interest
● Other income documents and records of digital asset transactions
● 1095-A, Health Insurance Marketplace Statement, to reconcile advance payments or claims Premium Tax Credits for 2022 Marketplace coverage
● IRS or other agency letters
● CP01A Notice with your new Identity Protection PIN
What steps can I take to help avoid tax identity fraud?
1. Use a reputable tax preparation software or service
Choose a reputable tax preparation software or service to help ensure that your personal information is kept secure.
2. Keep your personal information safe
Be careful with personal information like your Social Security number. Avoid sharing it with anyone you don't trust or carrying your Social Security card on your person. Instead, store it in a safe place at home, like a safe or locked box. This may help reduce your risk of identity theft if your wallet or bag is stolen.
3. Monitor your credit report and scores
Check your credit report regularly to make sure there are no unauthorized accounts or loans in your name.
4. Don't click on links in emails or text messages from unknown senders
Even if a message appears to be from the IRS, do not click on it if you do not recognize the sender. The IRS does not initiate contact with taxpayers via email or text message.
Can filing taxes affect my credit score?
Taxes themselves generally do not directly affect your credit score. However, if you have unpaid taxes, the government may take action to collect the unpaid amount, such as by placing a lien on your property or garnishing your wages. These actions can have a negative impact on your credit score, as they may be reported to the credit bureaus.
Additionally, if you have unpaid taxes and the government files a lawsuit against you to collect the unpaid amount, a judgment may be entered against you, which could also have a negative impact on your credit score. In general, it's important to keep up with your tax obligations and pay any taxes you owe in a timely manner to avoid potential negative consequences on your credit score.
Can I pay my taxes with a credit card?
Paying your taxes with a credit card can be an option if you don't have the funds available to pay the taxes you owe by the deadline. However, it's important to be aware of the ways in which doing so may impact your credit score:
Credit utilization
Paying taxes with a credit card can increase your credit card balance, which can affect your credit utilization ratio. This ratio compares the amount of credit you are using to the amount of credit you have available. A high utilization ratio can lower your credit score.
2. Interest charges
If you don't pay off the balance of your credit card in full and on time, you may be charged interest on the taxes you paid. Interest charges can add up quickly and can make it more difficult to pay off your credit card balance, which can negatively impact your credit score.
3. Missed or Late payments
If you miss or make a late payment on your credit card balance, it can also negatively impact your credit score.
It's always advisable to consult with a tax professional or financial advisor before making any decisions regarding taxes and credit card payments. If you do plan to pay your taxes with a credit card, just make sure you can pay off the balance in full and on time.
Can children be victims of tax fraud?
Yes, identity thieves can target children with tax-related identity fraud in a few ways. Children's Social Security numbers are often used to file fraudulent tax returns because they may not have been used to file taxes before and may not be flagged as suspicious by the IRS. Children's identities may also be stolen and used for tax fraud because they are less likely to check their credit reports or be aware that their identity has been stolen.
Additionally, identity thieves may use stolen children's personal information to file a false tax return claiming the child tax credit, a form of tax credit that parents and caregivers can claim for each child under the age of 17. These credits can significantly reduce the amount of taxes owed and can also result in a refund.
How can I help protect my child from tax-related identity fraud?
To help protect your children from tax fraud, it's important to keep your children's personal information safe and secure. Be sure to monitor your child's credit report and be vigilant about checking for suspicious activity.
Watch for signs of tax-related identity theft, such as receiving a letter from the IRS indicating that more than one tax return was filed in your child's name, or that you received a refund for a child tax credit you didn't claim.
If your child is a minor and has not yet been issued a Social Security number, you can also consider proactively requesting one from the Social Security Administration (SSA) to help avoid identity theft.
What should I do if I (or my children) become a victim of tax fraud?
If you suspect that you have been a victim of tax identity fraud, contact the IRS, the Federal Trade Commission (FTC), and the credit bureaus immediately to report the fraud.
The IRS has a special unit dedicated to helping victims of tax identity fraud, and they can provide you with guidance and support to help resolve the issue. You may also consider freezing your credit to help avoid any further damage.
Scammers are persistent, especially during the tax season. They employ all kinds of social engineering techniques — including phishing emails, malware, ransomware, and more — to try to access critical personal info, like Social Security numbers, that they can use to steal people’s identities. To learn more about how social engineering works and how you can help avoid being victimized by cybercriminals, check out our blog.
What next?
Monitoring your credit report can be a lot to manage on your own, to say nothing of monitoring your children’s credit reports as well. Luckily, PrivacyGuard offers credit monitoring and identity protection plans to help you keep track of your credit scores.