Do You Have to Pay Income Tax on Hacked Social Security Benefits?

A CPA who spent his career as a personal Financial Specialist is dealing with that question right now.

The CPA, who did not provide his name in the guest blog on the AICPA web site, said that he provided his clients with retirement, tax, estate and other financial advice for decades.

That, however, did not stop him from being the victim of an identity thief.

How he found out that he was a victim was when he received a letter from Social Security congratulating him on starting to take his benefits.  Only problem was, he hadn’t done that.  His plan was to wait until he was 70 to start taking them.

He says that people between the ages of 62 and 70 are at most risk because they are eligible to collect social security.   Those who do not apply until age 66.5 can get up to six months of back benefits, which is what this thief did.  To the tune of $19,236.

Even though he had frozen his credit file with the three credit bureaus, the thief was able to open an account with a major retailer who advertises that that you can open an account for a prepaid debit card with no credit check (based on their web site, that is likely Walmart) since there is no credit risk to Walmart because the card is prepaid.

The thief applied to Social Security, asking for those back benefits and had them sent to the account associated with that prepaid Visa card.  The rest is history.

The CPA thinks the attacker used the Social Security Retirement/Medicare benefit application web site to apply for the benefits.  That site, apparently, does not require you to securely identify yourself.

He says that the attacker applied using a different email address than the one on file, changed one digit on his phone number and applied for benefits paid to this prepaid card.

The one thing the thief could not do on this unsecure web site is change the CPA’s address, so, at least, he did get notified that he had been hacked.

Now the even worse part.

He received a 1099 from Social Security for the benefits that the thief stole.

So now he has to fight with Social Security to prove that it wasn’t him.

Fight with the IRS so that they don’t make him pay taxes on that $19,000 that he never got.

And fight with Medicare because that income put him in a category that would  make him pay more for his medicare insurance.

Isn’t that fun?  The benefit of the Internet.

Information for this post came from the AICPA web site.

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