Identity theft is a serious and common concern. For example, the Bureau of Justice Statistics points out that it victimizes about 9% of U.S. residents 16 and older per year.
One significant consequence of identity theft is the potential for tax issues with the Internal Revenue Service.
Unauthorized tax returns
Thieves may use stolen personal information to file fraudulent tax returns. They claim refunds in the victim’s name. When the legitimate taxpayer files their return, they may discover someone already filed a return using their identity. This leads to complications and delays in processing.
Incorrect information
Identity thieves may use stolen information to report false income or claim illegitimate deductions on tax returns. This can result in the taxpayer receiving notices from the IRS regarding discrepancies in reported income or deductions. Resolving these issues can be time-consuming. It may require providing documentation to prove the accuracy of the taxpayer’s return.
Tax debt accumulation
Another consequence can be the accumulation of tax debt. If a thief uses someone else’s identity to obtain employment and earn income, the victim may be responsible for taxes owed on that income.
Additionally, if someone claims fraudulent deductions or credits, the victim may be liable for any resulting tax liabilities. Failure to address these issues promptly can lead to penalties and interest charges accruing over time.
Impact on credit score
Identity theft can have indirect effects on an individual’s credit score, which can further complicate financial matters. For example, if tax debts go unpaid due to identity theft, the IRS may file a tax lien against the victim’s property. This can negatively impact their creditworthiness. This can make it more difficult to get loans or lines of credit in the future.
Protection
To protect against identity theft and its associated tax issues, individuals should take proactive steps to safeguard their personal information. This includes using strong, unique passwords for online accounts, monitoring financial statements regularly for unauthorized activity and being cautious when sharing personal information online or over the phone.
Additionally, taxpayers should file their tax returns promptly and securely, using reputable tax preparation services or software. Individuals should report identity theft suspicions to the IRS and follow its guidance for resolving the issue.
By staying vigilant and taking preventive measures, individuals can reduce the risk of identity theft and minimize its potential impact.