NCPA - National Center for Policy Analysis

IRS Makes Billions of Improper Tax Credit Payments

December 12, 2014

The Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) reduce the tax burden of low income individuals. Unfortunately, for the last decade, the Treasury Inspector General for Tax Administration (TIGTA) has been releasing reports on these programs that reveal a large amount of "improper payments," and a new report on the EITC and ACTC reveals the programs continued to be plagued with problems.

Tax Foundation economist Alan Cole explains:

  • In 2013, the IRS between $13.3 billion and $15.6 billion in "improper" EITC payments - between 22 and 26 percent of all EITC payments from that year.
  • The TIGTA report estimated that between 25.2 percent and 30.5 percent of ACTC payments for 2013 were improper, adding up to between $5.9 billion and $7.1 billion.

Why are there so many improper payments? According to Cole:

  • Applying for the credits can be confusing. A government report detailing how to apply for the EITC is itself 39 pages in length.
  • Who qualifies as a "child" for tax credit purposes can be confusing when children live with two separated parents at different times or when they live with non-biological relatives.
  • The eligibility requirements for the tax credits are complex and often hard to understand.

Cole advocates for simplifying the tax credit process in order to reduce the amount of payment errors typically seen each year.

Source: Alan Cole, "Treasury Report: Improper Payments Remain a Problem in EITC, Child Credit," Tax Foundation, December 10, 2014.


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