Recent Tax Updates

What States are doing to Combat Tax Identity Theft

September 23, 2015

When tax identity theft is mentioned most people think of it in relation to their federal income tax return. However, tax identity theft is having an increasing impact on taxpayers’ state income tax returns as well. In fact, identity thieves do not just target the state where the taxpayer resides, but also all other states that have a state income tax.

In the past two filing seasons state tax identity theft has grown significantly. As a result, state tax agencies have begun to take steps to try to prevent tax identity theft. The impact of these efforts to the taxpayer is that more taxpayers are receiving letters regarding possible identity theft and tax refunds are not coming as quickly as they have in the past.

Some of the new processes that states have implemented are:

  • Adding additional fraud filters that all returns will pass through
  • Lengthening the time any state refund is released
  • Requesting that additional information, such as a driver’s license number, be included with a return to help confirm that the return really belongs to the taxpayer
  • Sending letters asking taxpayers to verify who they are before they complete the processing of the return. Here are some examples of these new procedures in some states:
    • Requesting the taxpayer to go to the state website or call to answer questions to identity who they are (Alabama, Connecticut, Georgia, Indiana, Louisiana, Massachusetts, Ohio, Utah, Wisconsin)
    • Requesting the taxpayer call or send the state additional information to verify who they are (Idaho, Michigan, Montana, Oklahoma, Pennsylvania, Virginia)
  • Allowing taxpayers to tell the state to notify them when their tax return has been filed
  • Beginning with calendar year 2015, Utah is requiring their employers to file their Utah W-2, 1099-R, and the Utah Annual Withholding Reconciliation by January 31. If they fail to do this the employer will be penalized. For Utah employers who do not file their employees’ forms by January 31, the following will occur:
    • Taxpayers who file in the early part of the season will not receive their Utah refund until sometime in March.
    • Those filing later in the filing season may see a delay in receiving their Utah refund.

    For more information, see the Utah State Tax Commission’s Withholding Tax Change announcement on Utah’s website.

As more states implement similar processes to combat identity theft, taxpayers will see states requesting additional information be sent with their state return to help confirm their identity, causing a slowdown in the release of their state tax refund.