Data Breach Victims: Will You Have to Pay Taxes on Free Credit Monitoring?

If you’ve had your personal information compromised in a data breach in the last few years (which is highly likely), you’ve probably received an offer for free identity theft protection services, free credit monitoring tools or a combination.

Getting something for free sometimes raises the question, “Will I need to pay taxes on this?” In this situation, the answer is no. The IRS recently issued guidance on the topic of free identity theft protection related to data breaches, saying, “The IRS will not assert that an individual whose personal information may have been compromised in a data breach must include in gross income the value of the identity protection services provided by the organization that experienced the data breach.”

Well, now you know.

Of course, the taxability of free identity theft protection services doesn’t seem likely to be a top concern among data breach victims. There are more pressing things to address, like whether someone has used your identity or financial information to commit fraud, and if so, how much time and money it’s going to cost you to get that fixed. Even with protection services, it’s often a pain to recover from identity theft. Given the prevalence of data breaches, you’ll probably have to deal with that at some point.

One of the best things you can do to minimize the problems caused by data breaches is to regularly, frequently review your financial account information and your credit scores. If, for example, you’re in the habit of checking your credit card activity, you’re more likely to quickly notice a suspicious transaction. Similarly, if you check your credit scores every month, you’ll be sensitive to sudden changes, and you can investigate the source of a change. Credit scores fluctuate often, but they can also reflect fraud. To keep tabs on this, you can get a free credit report summary every 30 days on Credit.com.