States That Delay Tax Refunds Due to Identity Theft
You might have to wait longer if you pay taxes in one of these states
Identity theft and fraud hit almost 15 million consumers in 2017, according to a survey conducted by the Harris Poll. Several governments are now cracking down on issuing tax refunds in an effort to prevent tax-related fraud. You could experience a delay receiving your tax refund from the federal government or if you live in one of a handful of states.
How the Federal Government Is Monitoring Tax Fraud
Refund fraud related to identity theft is a top priority for the Internal Revenue Service. The IRS is focused on preventing, detecting, and resolving identity theft cases as soon as possible. It has dedicated more than 3,000 employees to work on identity theft cases, more than twice the number of employees it employed in this capacity just a few years ago.
The IRS has also trained more than 35,000 employees who work with taxpayers to recognize fraud and to provide assistance when identity theft occurs.
The federal Protecting Americans from Tax Hikes (PATH) Act restricts the IRS from sending out any refunds prior to mid-February to taxpayers who claim the earned income tax credit. This relatively new rule is designed to give the IRS time to investigate each claim to make sure it's legitimate and that the taxpayer honestly qualifies for the credit.
Other returns should not be delayed, at least not at the federal level. You might have to jump through a few more hoops to prove your identity if you're e-filing your return, however.
How Thieves Steal Your Tax Identity...and Your Refund
Identity thieves often try to file fraudulent tax returns using another taxpayer's identifying information. In fact, this is often the first clue that you've been compromised. You'll submit your return to the IRS only to have it rejected because a return has already been filed under your Social Security number...but you didn't file it.
An identity thief will typically file scads of returns each year as soon as it is possible to do so because most tax authorities process returns as they receive them. The thief is trying to beat you to the punch and get a return filed under your name before you get around to filing.
The state or federal government will lose any refund it issued to the thief, but it will also make good on the refund that's due to you if you can prove fraud. The government effectively ends up paying the same refund twice.
This can cost states a good bit of money, so several have taken steps to prevent it.
The Illinois Department of Revenue started delaying tax refunds in March 2016. "We are taking additional steps to protect Illinois taxpayers from identity theft and fraud," the Department states. "To ensure the security and confidentiality of taxpayer information, we have initiated a review process to combat fraudulently filed returns. As a result of the new security measures, refunds may take longer to process than in previous years."
North Dakota Refunds
North Dakota will also delay state tax refunds as part of an effort to prevent fraud. "Refunds may take longer than in the past. With the recent rise in ID theft and tax fraud, additional security checks are in place that may slow processing time," the North Dakota Office of State Tax Commissioner states on their Where's My Refund page.
South Carolina Refunds
The South Carolina Department of Revenue (SCDOR) started delaying tax refunds in March 2016 as part of an effort to ensure that refunds are issued to the right people. "The SCDOR’s enhanced fraud detection and prevention measures may lengthen the time it takes to process refunds, particularly at the beginning of the filing season," the Department of Revenue explained in an announcement.
It also states that "for returns filed on or after March 1, 2016, refunds are expected to be issued within two to three weeks of the date a return is received."
Delayed refunds are just one of the tools the Department of Revenue is using to fight tax refund fraud. The Department is also using advanced analytical tools to detect fraudulent tax returns. You can learn more about their efforts on their Fighting Fraud page.
New Jersey Refunds
New Jersey began delaying refunds in 2015 after the state caught more than 10,000 fraudulent returns claiming certain refunds the year before. It then implemented some security measures to prevent fraud, and the measures mean that it will take just a bit more time to issue refunds.
The state has said that "maintaining the security of taxpayer information is of paramount importance to the Division of Taxation."
3 Steps to Guard Against Identity Theft
Don't carry your Social Security card or any documents with your SSN or Individual Taxpayer Identification Number (ITIN) on it.
Don't give a business your SSN or ITIN just because it asks for it. Find out why it's wanted and what steps the business will take to protect it.
Protect your personal computers by using firewalls and anti-spam/virus software. Update security patches, and change your passwords regularly for all internet accounts.
If You've Already Been Compromised
Report the theft of your identity to both the IRS and the Federal Trade Commission (FTC). Reporting to the IRS involves submitting Form 14039, the Identity Theft Affidavit, along with a paper copy of your return for filing. The IRS will investigate the matter for you.
You might also want to place a fraud alert on your credit records and keep a careful eye on your financial and credit accounts. Fraudsters don't generally stop after they've successfully made off with a tax refund under someone else's Social Security number.
And don't assume that your state is not delaying refunds just because it does not appear on this list. States update such legislation regularly. Check the appropriate Department of Taxation website to find out about any recent changes.