You probably missed these recent observances, but don’t miss the message.
The National Cyber Security Alliance designated Jan. 28 as “Data Privacy Day” in an effort to make people more aware of the importance of protecting their personal information. “Tax Identity Theft Awareness Week,” promoted by the Federal Trade Commission, ran from Jan. 25 to Jan. 29.
Both are good campaigns. And while there are some things we can do to protect our privacy, the reality is that guarding our personal data is like trying to put toothpaste back in the tube. It’s a tough task. Just ask Crystal, a Virginia woman who had her identity stolen last year. A fraudulent tax return was then filed in her name.
Crystal worries that she’ll be victimized again this year. No matter what Crystal did to protect her data — faithfully checking her credit reports, for example — she couldn’t fend off the scoundrels who used her Social Security number to file a 1040-EZ return.
For people like Crystal who’ve been victimized, the IRS has a list of recommended actions. Crystal followed the steps last year after she realized her data had been compromised. She filed a paper return, attaching IRS Form 14039, the “Identity Theft Affidavit.” She called the IRS’ Identity Protection Specialized Unit (800-908-4490) to answer questions in order to prove she was the real taxpayer.
Crystal said she was told by the IRS that, prior to the start of this year’s filing season, she would receive a special “Identity Protection Personal Identification Number” (or IP PIN) in the mail to help protect her tax returns going forward.
She’s still waiting on the number.
So she called the IRS’ identity-protection unit again. The advice she got was simply to file her return early.
“I told them I will file as early as I can and had planned on doing that, but I have to wait until I get W-2s and 1099s, whereas the fraudsters can just make up numbers and file before me,” Crystal told me in an interview. “I am so frustrated. I feel like I’ve been left out in the cold by the IRS.”
A spokesperson for the IRS said taxpayers who had their identities used to file fraudulent returns generally will be eligible for the special PIN after their cases have been resolved. This year, the IRS sent 2.7 million taxpayers IP PINs. As for Crystal, the IRS said an additional small group of taxpayers should receive their notices in the next couple weeks.
Here are some other resources to be proactive when it comes to tax-related identity theft:
▪ Read IRS Publication 4524 “Security Awareness for Taxpayers.”
▪ Go to youtube.com/user/irsvideos and look for the 13 videos in the agency’s “Identify Theft” playlist.
If you become a victim, here are some resources on irs.gov to help you start clearing things up:
▪ Read this guide: “IRS Identity Theft Victim Assistance: How It Works.”
▪ You have the option of requesting a copy of the fraudulent return. It will be redacted, but the IRS says there’ll be enough information to determine how your information was used. Search for “Instructions for Requesting Copy of Fraudulent Returns.”
The FTC recently announced that people can now get a free, personalized plan to help recover from identify theft, including tips, online fillable forms and template letters. Go to identitytheft.gov. There is a customized option if someone else has used your information to file a tax return. The site is also integrated with the FTC’s consumer complaint system and will allow identity-theft victims to file a complaint with the agency.
The timing of the site launch should really help people like Crystal. But if you become an identity theft victim, dig deep for a lot of patience, because clearing your name can be taxing.
Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Email: firstname.lastname@example.org; Twitter: @SingletaryM) or Facebook: www.facebook.com/MichelleSingletary.
Common tax mistakes
College students forgetting to file: If you are single and made more than $6,300 in wages last year or received at least $1,050 in unearned investment, interest or profits from selling — including those eBay sales — you must file a tax return.
Newlyweds choosing the wrong filing status: When completing tax returns as a married couple, compare the total amount of tax due between the two filing status options: married filing jointly and filing separately. Find out which status nets you the lowest tax bill. This is easy to do with tax software. Or, ask your tax professional to do the calculations for you.
New homeowners failing to keep track of everything: If you use part of your home for a business, you might be able to deduct applicable repairs. If you sell, you can add the cost of improvements to your original price, or basis, and save on capital gains taxes if you owe them.
Millennials filing as a dependent when you’re independent (and vice versa): If you still live at home or get any kind of financial assistance from your parents, be certain that you’ve elected the right filing status. Parents can claim qualifying children under age 19 as dependents, or under age 24 if they are still students. If your parents claim you as a dependent on their tax return, you cannot claim your personal exemption on your income tax return. Instead, check the box indicating that someone else can claim you as a dependent. On the flip side, millennials might check this box and file as a dependent when they should instead file as independent, missing out on the opportunity to reduce their taxable income. The personal exemption amount changes every year, but for tax year 2015, the amount is $4,000. That $4,000 personal exemption might be just the ticket some millennials need to finally get ahead financially.
Millennials skipping out on health insurance: People age 26 to 34 are the most uninsured of all age groups, with around 21 percent not having insurance, according to a recent Gallup-Healthways survey. Under the new health care law, millennials who go without health insurance will have to pay a hefty penalty when they file their returns. Those who can afford health insurance but don’t buy it must pay what’s known as an individual shared responsibility payment, according to HealthCare.gov.
The only way around the non-coverage penalty is to qualify for an exemption by having a household income that’s less than 8.05 percent of the lowest-cost bronze level marketplace plan. If you find yourself stuck paying the non-coverage penalty, the IRS will hold back the amount of the fee from any future tax refunds. There are no liens, levies or criminal penalties for failing to pay the fee.
Forgetting to deduct student loan interest: You might be able to deduct student loan interest payments up to $2,500 on a qualified student loan, according to the IRS. Like most deductions and credits, there is an income limit to claim this deduction — your modified adjusted gross income can’t be over $80,000, or $160,000 if filing a joint return. Millennials should also know that they don’t have to file an itemized return in order to qualify for this deduction.