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W2 Scams Increase Tax Return Times

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If you’re filing a tax return these season, you might want to prepare yourself for a long wait on your refund due to increased activity by identity thieves, possibly up to three times longer as compared to recent years. The inordinate increase in W2 phishing scams on companies has forced states to add extra filters and layers of fraud detection to their return processing system.

Most states didn’t actually start processing tax returns until March 1. Not surprisingly, that coincides with an uptick in reports of companies falling victim to W2 phishing scams. In most cases, emails were sent by hackers to finance and human resources employees, pretending to be the CEO of a company requesting the W2 information for all their employees. Once the data was handed over, the thieves are able to file phony tax returns in all those employees’ names, ideally before the victim has a chance to.

Gentax is a return processing and auditing system that is used by nearly half of US state revenue departments and its added fraud filters are the most likely source of delays. These filters look for signs of fraudulent refund requests, such as multiple refund requests being filed from the same location and how quickly the return was filed. Each time there is a report of a company having a data breach, they have to go back, reset the filters, and assess whether or not the returns that are yet to be completed have been compromised.

The goal of these filters is to assign each tax return a score for “wage confidence” and “identity confidence”. Returns that have a high “wage confidence”, but a low “identity confidence” are very often fraudulent, as scammers are filing returns with phished W2 information that is often wrong and are asking the money be wired directly to an account that can’t be directly connected to the taxpayer. If all else fails and there is no way to deny the sketchy refund request, the state will deny the electronic deposit request and send a paper check to the taxpayer’s most recent known address. Though the system seems to working thus far, there will be an increase in paper checks issued to taxpayers.

One new wrinkle in the W2 spoofing scam is the rise of criminals registering as “electronic return originators”. Essentially, an ERO is an accountant or a tax preparation firm that is registered with the IRS so they can process tax returns electronically for businesses and individuals. What the thieves do is register as an ERO, buy some tax preparation software, then submit large numbers of fraudulent return requests at once, hoping some get through before they are caught.

The end result of companies being lax with their employees’ personal data and the states trying to make up for it, is more waiting for those of us who are legitimately filing tax returns. As if filing your taxes wasn’t already enough of a pain.