Tax scams are becoming more sophisticated each year, especially during tax season when millions of Americans are filing and expecting refunds. Scammers take advantage of this urgency by posing as the IRS, offering false promises of larger refunds, or pressuring individuals into sharing sensitive information.
Falling victim to a tax scam can lead to identity theft, financial loss, and delays in receiving your refund. Understanding how these scams work, and knowing what to watch for can help you protect your money and your personal information.
Key Takeaways
- Awareness is essential: Understanding how tax refund scams operate helps you identify and avoid them before any damage occurs.
- Verification is key: Always confirm the legitimacy of any communication claiming to be from the IRS or other financial institutions.
- Be proactive: Strengthen your online security with strong passwords, two-factor authentication, and by filing taxes early.
- Act quickly if compromised: If you suspect fraud, report it immediately to the proper authorities and monitor your financial accounts for unusual activity.
Understanding Tax Refund Scams
1. Phishing emails and fraudulent texts
Tax refund scams come in many forms, from phishing emails to fraudulent text messages. Scammers often pose as IRS officials, convincing taxpayers that they owe money or are due a refund, only to steal personal information once they gain your trust. For example, a common tactic involves sending fake IRS emails that direct individuals to a fraudulent website to enter personal details.
Expert tip: Before responding to any IRS emails, check the website and email address. Look for errors and misspellings. Never give any information or click any links without verifying the email is real. Typically, the IRS will contact you via mail delivered by the U.S Postal service. In addition, with your permission they may use text or email services as well. The IRS will never:
- Direct message or take payment on social media.
- Accept gift cards or prepaid debit cards as payment
- Call with automated messages that threaten or direct to websites that aren’t IRS.gov
- Threaten to call law enforcement or immigration officials
- Take your citizenship status, driver’s license or business license
- Mail tax debt resolution advertisements
2. IRS warns of “Big Payday” scams
As we all know, there is tons of bad financial advice online, advice about taxes is no different. Please validate every bit of advice you find. Never take anything at face value and remember if it seems too good to be true, it most likely is. See list of common tax scams below.
- Charity impersonators – You are not able to deduct donations to fake charities
- Credits and refunds misinformation – Incorrect information on how to get a bigger refund misleads you to claim credits you’re not eligible for. This leads to a delayed refund, audit or other consequences like fines or imprisonment.
- Dishonest tax preparers – Don’t trust a tax preparer who doesn’t sign the return, falsifies tax information, puts your refund in their bank account, or requires you to pay in cash or doesn’t give you a receipt
- Seniors targeted – Scammers target people over age 65 or nearing retirement for personal or financial information or money. Often, once you give them money, they ask for more. When scammers trick you to withdraw from your retirement account, it could affect your taxes.
- Social media bad tax advice and scams
- Tax debt settlement or relief services – People pressure you to use their services to settle taxes you owe. They promise to relieve your tax debt for “pennies-on-the-dollar.” They rush you to pay them for this service.
- Unclaimed tax refund – Impersonation mail misleads you about an unclaimed refund.
Tax Scams – Red Flag Checklist
The first step in protecting your refund is recognizing the red flags of a scam. Let’s look at a quick checklist. If you encounter the following, it may be a tax scam.
- You’re contacted unexpectedly about a tax issue or refund
- You’re pressured to act immediately or threatened with consequences
- You’re asked to pay using non-traditional methods (gift cards, crypto, wire transfer)
- You’re asked to share sensitive personal or financial information
- You’re promised a refund or tax benefit that seems unusually high
- You’re directed to click a link or visit a website that doesn’t look official
When in doubt, pause and verify through official IRS channels before taking any action.
Expert counselors at American Consumer Credit Counseling always advice to be wary of unsolicited communications whether via email, phone, or text that request personal or financial information.
Proactive Measures for Protection from Tax Scams
Protecting your personal information requires a proactive approach.
- Password security: Start by using strong, unique passwords for all online accounts. Enable two-factor authentication where possible.
- Choosing a reputable tax preparation service – Verify tax preparer’s credentials, ensure they sign your tax documents and avoid anyone who promises you an unusually large refund or expects cash payments.
- Filing your taxes early – Reduce the risk of fraud by early preparation, as scammers most often target individuals who are yet to file, or last minute rushed filers.
What to Do If You Suspect Fraud
If you believe your tax refund or personal information has been compromised, it’s important to act quickly to minimize potential damage.
Step 1: Report the incident
Immediately report the issue to the IRS and provide any relevant details. You can contact the IRS directly through their official website or phone number.
If the communication claims to be from the IRS, you can also:
Step 2: Monitor your financial accounts
Review your bank accounts, credit cards, and financial statements for any unusual or unauthorized activity. Early detection can help limit further damage.
Step 3: Protect your credit
Consider placing a fraud alert on your credit reports to make it harder for scammers to open accounts in your name. Regularly checking your credit reports can help you stay ahead of potential issues.
Safeguarding Yourself from Tax Scams
Tax scams are designed to exploit urgency, confusion, and trust, especially during filing season. By understanding how these scams work, recognizing common warning signs, and taking proactive steps to protect your information, you can reduce your risk of becoming a victim.
Staying alert, verifying communications, and acting quickly if something seems suspicious are key to protecting both your tax refund and your financial security. As tax scams continue to evolve, awareness remains your strongest defense.
Frequently Asked Questions
Q: What should I do if I receive a suspicious email claiming to be from the IRS?
A: Do not click on any links or provide any information. Report the email to the IRS by forwarding the email to [email protected] and delete it immediately.
Q: How can I verify if a phone call from the IRS is legitimate?
A:The IRS will never call to demand immediate payment or ask for financial information over the phone. Remember, the IRS already has your SSN. Verify by contacting the IRS directly through their official contact details.
Q: What is an Identity Protection PIN, and how can it help?
A: An Identity Protection PIN is a six-digit number provided by the IRS to prevent someone else from filing a tax return using your Social Security number. It offers an additional layer of security for your tax filings.
Q: What are the most common tax scams to watch for?
A: Common tax scams include phishing emails, fake IRS phone calls, fraudulent tax preparers, and misleading refund offers. These scams often involve requests for personal information or urgent payment demands.
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.
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