Tax refund identity theft is growing

Tax refund identity theft is growing exponentially and there’s only one way to protect yourself.

This nasty problem has grown fivefold over the last year, according to figures presented during a recent hearing in the U.S. House. Unfortunately, the IRS is clueless about how to put procedures in place to stem the tide.

First, though, let’s back up to get an idea about how this happens: Very early in tax season, a criminal files a tax return claiming a big refund as if they’re you. They get the money and then vanish. Unaware of what’s transpired, you later go to file and your legitimate return is rejected because you supposedly already filed.

It can take the IRS from months to years to figure out that a crime has been committed and make you whole, according to testimony during the House hearing.

The reality is the IRS has no working answer in place. But I have a solution to offer you: Just reduce your withholding with your employer.

For example, if you get paid bi-weekly and typically get a refund of $1,000 each year, then you’re being over-withheld by about $40 per pay period. Talk to human resources or a payroll specialist at work to make the change and reduce your withholding by $40 per pay period.

The only real harm to your wallet occurs when you can’t get the money that you overpaid into the system. So if you don’t overpay in the first place, you make things easier for yourself. The goal is that you should hit tax time owing only a small amount or getting back a tiny amount.

Meanwhile, the IRS commissioner publicly apologized for the behavior of certain cruel employees in a separate hearing. After people fell prey to tax refund identity theft, some of them had to deal with hostile IRS employees treating them as if they were liars or worse.

Now, I know several people who work for the IRS, and they are fine, decent people doing a difficult job. But there’s no excuse for misbehavior. So I appreciate the apology from the IRS commissioner.

As for you, you need to do the preventative work I recommend yourself since the IRS has failed to do anything so far to stop tax refund identity theft.