March 2017: Even worse than doing your taxes is finding out someone beat you to it — and got your refund. Tax return fraud is still in the billions of dollars each year, which means it can affect you. Anyone who has your Social Security Number (SSN) can put you at risk, and this includes employers.
Here’s what to watch out for this year, how to protect yourself and your company, and what the IRS is doing to prevent tax return scams:
What employers should watch out for
W-2 phishing scams, especially if you work in education, healthcare, temporary staffing, a restaurant chain, tribal organization or nonprofit Data theft, which is extremely lucrative and can produce a nice side business of selling SSNs on the darknet
What employers should do
- Encrypt everything, especially employee information
- Create policies that prohibit sending W-2s and other personal information over email
- Require proof of identity before responding to requests for W-2s
- Have personnel with access to employee records sign confidentiality statements
- Strengthen internal controls for financial transactions
- Screen potential vendors you share employee information with (like your payroll firm)
- Don’t use paper forms that could get into the wrong hands or be photographed before shredding
- Use something other than an SSN to identify employees in company records
What taxpayers should watch out for
- Phishing emails that look like they’re from the IRS or your state government
- Phishing emails that look like they’re from your boss or someone else at your company
- Tax preparers who are not part of a reputable tax preparation firm
- Tax preparers who don’t verify your identity
- Your e-filed tax return being rejected because of a duplicate SSN (but it could just be a mistake, not fraud)
- A (real) snail mail letter from the IRS asking you about a suspicious return
What taxpayers should do
- Don’t send your SSN by email
- Don’t give out your SSN if you don’t really have to — you don’t know how well it will be protected
- Don’t carry your SSN card on you or keep the number someplace obvious
- File your tax returns right away so you’re the first to use your SSN
- Protect your identity online
- Keep an eye on your credit
- Be careful who you let do your taxes because they will know everything about you
- Review your return carefully before signing and get a hard copy
- After you’ve filed, use Where’s My Refund to check its status
- If you can’t file a return because someone else has used your SSN, submit an Identity Theft Affidavit Form 14039 and read about identity theft — the possibility of having to fill out more paperwork should be enough of a reason to file early!
If you’re wondering if you’re less likely to be a victim of tax return scams if you file your return by snail mail, you’re not. The IRS prefers you to file electronically so it can process your return faster and transfer your refund faster. The IRS says 90% of direct deposit refunds are processed within 21 days. Plus, when you e-file, you’ll know immediately if you’re a victim of tax return fraud. The sooner you know, the better.
What the IRS is doing
- Developing new safeguards to reduce fraud
- Limiting the number of refund direct deposits to the same bank account
- Requiring anyone using tax software different from last year to include their adjusted gross income from their 2015 tax return — an electronic filing PIN doesn’t cut it anymore
- Adding a 16-character Verification Code to another 50 million W-2s
- Requiring Employers to send in W-2 information by January 31 so the IRS has more time to crosscheck returns
- Holding Earned Income Tax Credits and Additional Child Tax Credits longer to verify returns
- Implementing more ideas from its security summit, which helped cut fraud in half last year
At work and at home, it’s important to find the right balance between security and convenience — dealing with tax return scams is no exception. You don’t want to be so focused on security that it gets in the way of being productive, but you also don’t want to be so trusting or (dare we say) lethargic that you put yourself, your employees or your company at risk. Leapfrog helps clients establish policies and procedures that protect against fraud and manage the technology that reduces risk. Please let us know if we can be of help during tax time or any other time.
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