Refunds, Returns & Risk: The Rise of Tax Season Scams

Tax season isn’t just busy for taxpayers — it’s peak hunting season for cybercriminals.

Between February and April each year, millions of Americans submit highly sensitive personal and payroll data. That surge of activity creates the perfect opportunity for criminals to file fraudulent tax returns, steal refunds, impersonate the Internal Revenue Service (IRS) and trick individuals and businesses into handing over Social Security numbers (SSNs) and financial information.

And the tactics are getting more sophisticated.

“Artificial intelligence (AI) and massive data breaches are reshaping tax fraud by giving criminals the personal information they need and the tools to automate the entire process. Breached data provides SSNs, payroll details and identity markers, while AI cleans that data, fills in gaps, generates fake documents and automates large-scale filing. Together, they make tax fraud faster, more convincing and far harder to detect,” said Steve Lenderman, isolved Head of Fraud Prevention.

AI-powered phishing, realistic voice impersonation and highly targeted W-2 phishing scams are accelerating the threat landscape.

The methods evolve each year and the goal never changes: steal your identity, intercept your refund or compromise your payroll data.

Tax Season Creates the Perfect Storm for Fraud

Tax season creates ideal conditions for fraudsters for several reasons:

• A massive concentration of sensitive data.
  During filing season, SSNs, dates of birth, wage data, bank account information and employer identification numbers are transmitted at scale. This high-volume exchange dramatically increases exposure points.

• Widespread use of SSNs.
  Few times of year require such heavy SSN usage across individuals, employers, tax preparers and government systems. That single identifier is the backbone of many identity theft schemes.

• Urgency around refunds.
  Refund anticipation fuels urgency and urgency fuels mistakes. Criminals rely on taxpayers acting quickly without verifying emails, phone calls or website links.

• Public awareness campaigns that criminals exploit.
  IRS reminders and media coverage about deadlines give fraudsters timely themes to mimic. Scam emails and calls often spike right after official announcements, using the same language to appear legitimate.

The result? A predictable annual surge in tax season scams.

SMBs Can’t Afford to Ignore Tax Fraud

Tax fraud prevention tips often focus on individuals. But small and midsize businesses (SMBs) are prime targets, especially during filing season.

• Payroll data is a goldmine.
  Employee records contain full names, SSNs, wage data, and home addresses. That’s everything an identity thief needs to file a fraudulent tax return before the employee does.
  
  “Cyber criminals use payroll system access to reroute refunds, create fake employees, or generate fraudulent wage documents that support refund claims,” Lenderman explains.

• The W-2 phishing scam remains one of the most damaging attacks.
  Cybercriminals impersonate executives and request copies of employee W-2s from HR or finance teams. One successful email can expose hundreds of employees to payroll identity theft.

• Employee identity theft affects more than finances.
  When an employee learns a fraudulent tax return was filed first under their name, it creates stress, lost time and frustration, which impact workplace productivity and morale.
  
  Lenderman expands, “Employee tax-related identity theft can create real operational and reputational challenges for an organization by eroding employee trust and highlighting weaknesses in internal systems or data security practices.”

• Employers share responsibility for protecting tax-related data.
  Businesses that handle payroll must implement layered security controls, especially during peak filing months.
  
  “Payroll security is one of the strongest defenses an organization has against tax-related fraud. When payroll systems are locked down with strong access controls, multi-factor authentication (MFA) and verification steps for direct deposit or W-2 changes, it becomes much harder for criminals to steal employee data or reroute funds,” Lenderman said. “Solid payroll security also prevents attackers from generating fake wage documents or exploiting system weaknesses that could support fraudulent tax filings.”

Tax season risk is not just a consumer issue — it’s a business continuity issue.

The Most Common Tax Scams to Watch For

One of the most common and financially damaging schemes involves criminals filing a fraudulent tax return before the legitimate taxpayer submits theirs.

Here’s how it works:

Criminals obtain a stolen Social Security number through a data breach, phishing attack or W-2 scam.

They file early in the season, often claiming a refund.

The refund is directed to a prepaid debit card, mule account (a bank or financial account used to receive and transfer illegally obtained money on behalf of criminals) or fake bank account.

When the real taxpayer files, the IRS rejects the return because one has already been submitted.

Recovering from a fraudulent tax return filed first can take months, delaying refunds and requiring extensive identity verification.

The best defense? Filing early reduces the window of opportunity for criminals.

Other common tax scams to watch include:

• IRS Impersonation Scam
  Fraudsters pose as IRS agents via phone, email, text message or even AI-generated voice calls. They may threaten arrest, demand immediate payment or claim a refund issue that requires verification. The IRS does not demand payment through gift cards, wire transfers or cryptocurrency.

• Phishing Emails with “Refund” Links
  These emails appear to come from the IRS or tax software providers and include urgent language about delayed refunds. Clicking the link leads to credential harvesting sites designed to steal login information and banking details.

• Fake Tax Preparers
  Scammers pose as tax professionals offering unusually large refunds. They may disappear after filing fraudulent returns or inflate refund amounts to skim funds. Always verify credentials and Preparer Tax Identification Number (PTIN), an identification number issued by the IRS to individuals who are paid to prepare or assist in preparing federal tax return, registration.

• W-2 Phishing Targeting HR Teams
  Often called business email compromise (BEC), this scam involves criminals spoofing or compromising executive email accounts and requesting employee tax forms. It remains one of the most damaging payroll-related fraud schemes for SMBs.

Stay Ahead of the Scammers: Practical, Proactive Steps

Protecting against tax refund fraud requires vigilance from employers.

SMB employers must treat tax season as a heightened threat period by:

• Training HR and finance teams on W-2 phishing scams.
  Reinforce verification protocols before releasing payroll data, especially for executive requests.
  
  Lenderman offers the following tip: “If an employer discovers a W-2 phishing scheme targeting their HR team, they should immediately stop any further data exposure, alert their payroll and security teams, and report the incident to the IRS.”

• Restricting access to payroll and tax records.
  Apply least-privilege access controls and regularly audit permissions.

• Requiring MFA across payroll systems.
  MFA significantly reduces account takeover risk.

• Communicating seasonal scam awareness to employees.
  A simple reminder about IRS impersonation scams and phishing attempts can prevent costly mistakes.
  
  “They should notify affected employees, review access logs for any unauthorized activity and strengthen verification procedures for all W-2 or payroll-related requests,” said Lenderman.

• Establishing an incident response plan.
  Know how to respond if payroll identity theft or a fraudulent tax return occurs.
  
  “If someone suspects a fraudulent tax return was filed in their name, they should report it to the IRS immediately and follow the agency’s identity verification process,” said Lenderman. “It’s also important to alert their employer’s payroll or HR team if the fraud appears connected to stolen W-2 or payroll data.”

Preparing for Predictable Tax Season Threats

Tax season scams 2026 will follow a familiar pattern: urgency, impersonation and stolen payroll data. But businesses and individuals that understand the tactics can significantly reduce their risk.

Lenderman offers simple, low-cost steps SMBs can take to make meaningful improvements: “Enforcing MFA on payroll and email accounts, training staff to spot phishing attempts and verifying any request to change direct deposit or W-2 information are all high impact, low-cost controls. SMBs can also limit who has access to sensitive payroll data, review account activity regularly and use secure portals instead of email for sharing tax documents. These small steps dramatically reduce exposure to tax related fraud.”

Tax fraud prevention starts with protecting the systems that store and transmit payroll data. Strengthening those controls year-round makes seasonal threats far less disruptive, which is why prioritizing protecting your payroll from threats is one of the smartest risk decisions an organization can make.