Looking forward to your tax refund? For victims of tax refund fraud, legitimate refund payments can be delayed by weeks or months. Also known as Stolen Identity Refund Fraud, this type of identity theft happens when a criminal uses your personal information to file a false tax return and claim your refund. By using a few best practices and requesting a six-digit Identity Protection PIN from the IRS, you can make it harder for someone else to file a tax return in your name.

What would you do with a $3,000 payment? 

This time of year, it’s common for Americans to receive just such an influx of cash: in 2020, the average tax refund payment was more than $2,800

Many people count on their refund to pay down debts, make large purchases, or boost retirement savings. But what if the anticipated funds wind up in a criminal’s account instead?

That’s just what can happen to victims of tax refund fraud — which is also referred to as Stolen Identity Refund Fraud (SIRF). Here’s how the scheme typically works: a thief gains access to your personal information, then uses your details to file a fraudulent tax return in order to pocket your refund. 

Unfortunately, this type of fraud may be a growing problem. We saw a 25% increase in requests to remediate tax-related fraud from 2020 to 2021. This spike is likely due to scammers taking advantage of the continued government benefits and tax credits made available during the pandemic.

The good news is you can up your defenses with a few simple steps. Read on for guidance on how to best protect yourself – then get tips on how to identify, report, and resolve the problem if tax refund fraud should happen to you.

Fast Facts

How common is tax refund fraud?

Thousands of Americans fall victim to tax refund fraud involving identity theft each year. As of June 2021, the IRS had confirmed 39,578 tax returns as fraudulent, an increase of 143% over the same year-to-date period in 2020. In 2020, the IRS flagged more than 5 million tax refunds as possibly fraudulent, according to the Taxpayer Advocate Service. The majority of those refunds turned out to be legitimate, but even so, many impacted taxpayers experienced delays in getting their payments.

How to protect yourself against tax-related identity theft

While nothing can provide complete protection against identity theft, these best practices may reduce your risk: 

  • File your return as early as possible. This year, the IRS began accepting tax returns on January 24. If you haven’t already filed your return, now’s the time. Once your return is processed, it’s harder for a thief to file in your name. 

  • Maintain good privacy habits. The IRS recommends all taxpayers take precautions such as using security software, encrypting sensitive information, creating strong passwords, and using multi-factor authentication whenever possible.

  • Be particularly careful about sharing your Social Security number, both in the real world and online. 

  • Look out for phishing scams. During tax season, tax-related phishing scams are common. Remember that the IRS does not initiate contact with taxpayers through email, text, or social media. Play it safe by ignoring or deleting messages from unknown senders, especially if you notice blurry images, frequent typos, or suspicious links (hover over an embedded link to see its true destination). Be particularly wary of any message that claims to be from the IRS.

  • Check out the IRS’s tips for choosing a tax preparer. Here’s a short summary: look for one with a Preparer Tax Identification Number (PTIN) and professional credentials, such as a certified public accountant (CPA) license.

What’s an Identity Protection PIN?

An Identity Protection PIN, or IP PIN, is a six-digit code issued by the IRS that can add an extra layer of security to the tax-filing process. In January 2021, the IRS made the Identity Protection PIN program available to all taxpayers. The PIN helps prevent someone else from using your Social Security number to file a tax return. 

Essentially, the PIN functions as another factor of identification. Once the IRS assigns one to you, you’ll need your PIN and your Social Security number to file, making it much harder for a scammer to make a claim in your name.

Any taxpayer with a Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) can request one each year using the agency’s Get an IP PIN tool.

Visit the IRS website for more information about opting in to the IP PIN program.  

How to recognize tax refund fraud

People often discover this fraud type during tax season — so we recommend everyone stay alert this time of year. Here are signs to watch out for: 

  • You get a letter from the IRS about a tax return you didn’t file

  • You’re unable to file your tax return because someone has already filed a return under your Social Security number

Here’s how we help our members report and resolve tax refund fraud

If you’re a member and you discover an issue with your identity during tax season — or any other time — we’ll be with you from start to finish. 

Our restoration specialists will remediate an identity theft case until it is resolved. In some cases, we take on limited power of attorney to file paperwork and work with the IRS to resolve the fraud on a member’s behalf. 

As tax refund fraud trends up, we’re in your corner.