5 Tax Fraud Scams HR and Employees Must be Aware of this Tax Season

Share these latest tax scams and helpful tips with your employees

The FTC reports that consumers lost $3.3 billion to fraud in 2020, with the two largest categories being identity theft and imposter scams. Tax season is a prime time for cyber criminals and identity thieves to commit tax fraud. Phishing scams are still on the rise with individuals impersonating HR or the IRS to get people to click malicious links in emails or give up your Social Security Number. The pandemic also saw an increase in phishing scams and unemployment insurance fraud.

Every year, the IRS releases the ‘Dirty Dozen’ - a list of the latest and most impactful tax scams to watch out for during tax season (and all year, since cyber criminals don’t take a vacation from identity theft from taxes). To keep your employees and yourself safe from the headache and potential financial loss of fraud this tax season be sure to share with your employees these scams as well as tips to avoid being a victim of fraud.

Know the five tax scams to watch out for this year:

1. Fake Charities – Scammers prey on individuals’ desire to do good by collecting money from taxpayers while posing as a fake charity. This is particularly effective during times of national or global hardship, such as the Covid-19 Pandemic. Charitable donations can be used as tax deductions if they were given to legitimate charities. Always look into any organization that is requesting donations and ensure they can give proper paperwork for taxable donations.
2. Imposter and Phishing scams – These scams happen year after year, where someone calls or emails taxpayers, claiming to be with the IRS and threatening some sort of action if they don’t respond. Scammers are most likely to go after vulnerable populations. Immigrants and senior citizens are some of the most targeted demographics for these scams. Remember, the IRS typically starts a correspondence with an individual through the mail and they never threaten action like jail time or deportation.
3. Unemployment insurance fraud – Employers need to be aware of the scams that occur with unemployment insurance. This includes filers using stolen identities to make unemployment claims, filers return back to work and fail to report the change in employment history, and filers creating a fictitious company or claiming unemployment benefits at a company where they never worked. During the pandemic, unemployment claims were at record highs, so this is an area of fraud to watch. When the state sends out unemployment insurance claim notices to a company, it’s important for HR to take special care in checking the details of each claim for accuracy. They should check to make the individual was actually employed at the company and the income claimed is accurate. If something is wrong, it’s up to the company to appeal the claim.
4. Offer in Compromise ‘Mills’ - These OIC ‘mills’ prey on individuals who have a large tax debt to the IRS. They make promises of being able to pay their tax burden for ‘pennies-on-the-dollar' but ultimately end up taking the taxpayer’s money and never actually helping alleviate their tax debt. If an individual is faced with a tax payment they cannot pay, they should work directly with the IRS to come up with a payment schedule and plan.
5. Ghost Tax Preparers – When preparing taxes, a legitimate preparer will sign the return before submitting to the IRS. If a preparer refuses to sign the return, they are considered a ‘ghost’ tax preparer and are often looking to make a quick buck off an individual’s refund. They will charge for preparing the return and often take a percentage of the refund. In order to make their money, they may claim fraudulent data, such as inaccurate income, to inflate the refund. When working with a tax preparer, make sure that they have a Preparer Tax Identification Number (PTIN) that proves they are qualified and registered to file taxes on someone else’s behalf.

While identity thieves may try to prey on you or your employees this tax season, there are ways to protect yourself from potential fraud.

Share these tips to help prevent tax fraud:

• File early – Identity thieves are known during tax season to file taxes for others in order to get the refund. The earlier you file your return, the less chance there is for someone else to file using your identity.
• Get a PIN – For added security, taxpayers can get an ID Protection PIN with the IRS. This number is associated with the taxpayer’s account and is known only to them and the IRS. When filing their taxes, they use the PIN to validate their identity.
• File online safely – Filing your taxes online is convenient, but make sure you are safe. If you are using an online tax preparer, make sure you use strong passwords and multi-factor authentication on the accounts. When filing online, use a secure Internet connection (VPN) and never file while connected to public Wi-Fi.
• Use a legitimate tax preparer – If you are having someone else prepare your taxes for you, make sure they are licensed and have a legitimate Preparer Tax Identification Number (PTIN). This will ensure your return is done right and is accepted by the IRS without major issues.
• Protect your Social Security Number – Phishing scams, especially ones related to taxes, often are attempting to get your SSN. If you receive a phone call from someone claiming to be from the IRS, do not give them your SSN over the phone. Do not send your SSN over email to anyone claiming to be the IRS or from your HR department. If the IRS is needing this type of information from you, they should have sent a letter in the mail. Your HR department may send an email requesting the information, but you can always validate the request through a separate phone call, email, or reach out to your HR department directly. Utilizing a service, like IDX Identity & Privacy protection solution, that helps detect fraud activities early can give you added protection for your SSN.

But what happens if you or an employee does run into a problem with identity theft or tax fraud? Often, an individual may not know there is an issue until the IRS sends a notice of an issue with their tax return.

If an employee does run into a problem with tax fraud or becomes a victim of identity theft, IDX not only helps remediate both, but will also give your employees added protection to keep fraud at bay. IDX Privacy offers unique features like a cookie blocker, password manager, data removal from data brokers, a VPN for safe Wi-Fi usage, and more. Plus, IDX Identity not only helps protect identity but will warn individuals through alerts, in case their information gets into the wrong hands, so that they can take action. IDX will also work closely with individuals to restore their identities to pre-theft status.

Remember: The IRS never initiates contact with people via email, text, or social media to request personal or financial information, ever. So, if your employees suspect they have become a victim of tax fraud or tax-related identity theft, raise the white flag. IDX is here to help.