Identity Thieves Can't Wait to File Your Taxes. Here's Why You Should Beat Them to the Punch

Don't let this tax season be an even bigger headache for you.

You might think that no one in their right mind enjoys filing taxes, but that's not exactly true. Tax season, with all of its complicated rules and a boatload of money up for grabs, is one of identity thieves' favorite times of year.

If they choose you as their target, it could turn an already unpleasant activity into a nightmare that could take weeks to resolve. Fortunately, there's a simple way to avoid this issue.

How identity thieves profit from doing your taxes

Identity thieves know that many people will receive refund checks from the government once they file their taxes for 2022. They also know the size of your refund check depends on several factors, including how much you've had withheld from your paychecks throughout the year and what kinds of tax breaks you qualify for.

It's that second factor that thieves use to their advantage. You might not have any children, but an identity thief might claim you have a dozen in order to rack up Child Tax Credits. Then, they might say you had some huge medical expenses you had to pay for in 2022 to get another deduction. Or they can claim you maxed out your retirement accounts when you didn't actually set aside a dime.

All of these things reduce your tax liability in the eyes of the government and may also increase the size of your refund check. That's great news for you when those deductions are legitimate. But when they're not, they're likely to raise some red flags with the IRS.

Identity thieves don't care about that, though. They'll say whatever they have to in order to generate the largest refund check possible. Then, they'll submit their phony return and have the refund check mailed directly to them.

This kind of scheme has become especially popular in the last few years, with tax-related identity theft claims rising 45% since before the COVID-19 pandemic, according to research by Investment Property Exchange Services. And part of the reason for this might be because it can go unnoticed for so long. Many people don't even realize someone's filed a fraudulent tax return on their behalf until they receive a notice from the IRS or try to submit their real tax return, only to be told they already have.

How to stop an identity thief from making tax season even worse for you

The best way to avoid becoming a victim of this sort of scam is to file your tax return promptly. Once it's submitted, a thief won't be able to file another one on your behalf so they'll move onto other targets. You should have received your tax forms from your employer by now, but if you haven't, reach out to them and begin gathering all other relevant paperwork so you can begin filing right away.

You should also take general steps to protect yourself from identity theft, like not accessing personal or financial information on public wifi networks and not sharing your Social Security number with others. Identity thieves need this information in order to file a return on your behalf, and they're more likely to go after those who make themselves easy targets.

You can also request an identity protection PIN from the IRS. It will issue you a six-digit number, which you must enter whenever you file your tax return now or in the future. This tells the IRS that it's you filing the return, and it will prevent identity thieves from being able to file one on your behalf.

What to do if you're the victim of tax identity fraud

Being a victim of tax identity fraud is stressful, but you can get things straightened out with the IRS. The first step depends on how you find out about the fraud. If the IRS sends you a notice about a suspicious tax return, follow its instructions. If you find out because you're unable to submit your real tax return, then you'll need to fill out an Identity Theft Affidavit and submit it to the IRS along with a paper copy of your return. Then, continue following IRS instructions.

If you believe the thief may have filed state or local taxes in your name as well, reach out to your state department of taxation. Someone there should be able to verify whether there's been a return filed in your name and help you with next steps.

It's also a good idea to notify the Federal Trade Commission (FTC) and your local police department. This could help stop the identity thief and it'll also help you document the theft. This documentation could be critical for you down the line, especially if your credit score takes a hit due to the theft.

Consider checking your credit reports as well to see if the identity thief has opened any other fraudulent accounts in your name. You can access yours for free through AnnualCreditReport.com, and you can get up to three free reports per week through the end of 2023. If you notice anything unusual here, notify the credit bureau and the financial institution associated with the account as soon as possible.

Hopefully, you don't ever find yourself the victim of tax identity fraud, but it's important you know how to prevent and respond to this situation anyway. It can be stressful, but as long as you're upfront with the IRS, you should be able to resolve the situation without too many problems.