The dreaded tax season is about to begin, but some good news was announced by IRS Commissioner John Koskinen on a conference call this week: Identity theft of tax returns (and their refunds) is down by about half.
“Last year, we had around 50 percent of new reports of stolen identity over the year before, after several years of not making much of a dent in the problem,” he said.
Koskinen attributed the improvement to the agency’s summit of industry and security professionals started in 2015 that focuses on adding extra security measures to the tax filing process each year.
The number of taxpayers affected by identity theft is still large, with around 260,000 victims last year, Koskinen said. Since the problem began in 2011, around 3 million victims have received a Personal Identification Number (PIN) from the IRS to confirm their identity and file returns.
Several measures to further reduce the identity theft problem are in effect this year, he said.
Among them is a delay in refunds for those filing for the Earned Income Tax Credit (EIDC) or the Additional Child Tax Credit (ACTC). Approximately 27 million people file the EITC and an additional 3 million to 8 million file the ACTC, Koskinen said.
Those who file for these credits are among the most targeted for fraud because the refund can be as high as $3,000 and identity thieves could file and receive the check before victims know what happened.
Legislation passed by Congress in December 2015 directs the IRS to hold these refunds until Feb. 15 in order to confirm identity with income data from W-2s or 1099s sent in from employers, who have a new deadline of Jan. 31 to submit that information.
“We will have the W-2s to match against questionable refund fraud and improper amounts,” Koskinen said. “We will be processing the returns as they come in, then release the refund on the 15th. It will be Feb. 27 or 28 before it is in their accounts.”
H&R Block said around 2.6 million Texans file the EITC, with about half filing before Feb. 15.
“Over 1 million early filers in Texas will be impacted by the delay,” said Monica Evans, a tax specialist in Fort Worth with H&R Block.
For a limited time, H&R Block will offer a refund advance with no interest and no fee to early filers, Evans said.
But retail preparers charge high rates for doing taxes, warns Sue Matkin, vice president of Community Development at United Way of Tarrant County. Matkin is in charge of the Volunteer Income Tax Assistance (VITA) program for United Way, which offers free tax preparation and electronic filing for those with incomes of $54,000 or less.
“Some for-profit tax preparers do the basic 1040-EZ tax form for free, but charge to apply for the Earned Income Tax Credit or Child Tax Credit,” said Matkin. “Filers can end up paying hundreds of dollars in tax preparation that we do for free.”
United Way’s VITA program prepared 8,013 returns last year generating $13 million in refunds, including $5.2 million in earned income tax credits, Matkin said. A third of the returns it prepares can on average claim the EITC.
“This year, we are also targeting grandparents who are raising their grandchildren and might be able to claim the credits,” she said. “The IRS estimates that 20 percent of people who appear to be eligible are not taking the EITC. We’re trying to educate more people that it is available.”
United Way has 16 VITA centers, including two new locations opening next week in Mansfield and Bedford, and two new locations in Fort Worth at the MLK and ADS community centers, Matkin said.
The centers also are expanding a VITA-To-Go program, where filers can drop off their information, prove their identity, then come back two days later and review and sign their returns. The program helped cut down on the wait time at the centers last year, Matkin said.
The IRS has other new security measures in place, Koskinen said.
▪ If you’re changing tax software products this year, have a copy of your prior-year return on hand. You may be asked to enter your 2015 adjusted gross income on this year’s form as a check on your identity. The IRS will no longer offer the Electronic Filing Personal Identification Number, or e-File PIN, as an alternative.
▪ Taxpayers who use Individual Taxpayer Identification Numbers, or ITINs, instead of Social Security numbers on their returns, will need to file for a new one beginning this week if their number had not been used at least once on a tax return in the past three years. The same new requirement is for ITINs with middle digits 78 or 79, which expired Jan. 1.
▪ A “trusted customer” features requirement by professional tax preparers will help ensure the authenticity of the taxpayer and the return by having the preparer provide information that they know the filer and have seen their W-2.
Filers are encouraged to avoid identity theft by using antivirus software and strong passwords and avoiding phishing email scams and fake IRS phone-call scams.
Taxpayers have until April 18 this year to file because of a holiday in Washington, D.C.
Volunteer Income Tax Assistance Centers. United Way of Tarrant County has 16 VITA centers in Tarrant County that open Jan. 17 for those with incomes of $54,000 or less. All volunteers are trained and certified by IRS. Drop-off sites at many locations. No appointments. Call 211 or go to www.mymoneydfw.com.
Free File. The IRS free tax software program starts Jan. 13 for incomes below $64,000. Go to www.IRS.gov to access the program.
AARP Tax-Aide Program. AARP has 35 sites in Tarrant County in public libraries and senior citizen centers where trained and certified volunteers provide tax preparation and electronic filing to anyone, regardless of age or income. Call 211 to find a location or go online at www.aarp.org at search for the Tax-Aide Site Locator. Appointments are recommended; walk-ins welcome. Starts in late January.