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Archive for Earned Income Tax Credit

IRS Efforts To Improve The EITC Improper Payment Rate Harm Taxpayers

Nina Olson- EITC

The Earned Income Tax Credit (EITC) is one of the primary forms of public assistance for low income working taxpayers.  However, the EITC is associated with a high improper payment rate.  According to the Treasury Department’s Fiscal Year (FY) 2018 Agency Financial Report, the FY 2018 EITC improper payment rate is approximately 25 percent.  A principal cause of the EITC improper payment rate is the complexity of the rules for claiming EITC, as reported by the Department of Treasury here and here.  While I recognize the importance of tracking and minimizing improper payments, I am concerned that the focus on “a number” masks both the successes and challenges in improving EITC compliance.  In fact, EITC improper payment estimates are based on audits of tax years four years in the past and do not reflect the most recent remedial measures.  Additionally, the Treasury Inspector General for Tax Administration (TIGTA) reports that the EITC improper payment rate does not take into account that for every dollar of EITC improper payments, 40 cents of EITC went unclaimed by taxpayers who appear to be eligible for the credit.

In this year’s Annual Report to Congress I reported that IRS actions to reduce the EITC improper payment rate are not sufficiently proactive and may unnecessarily burden taxpayers.  For instance, despite the acknowledged complexity of the rules for claiming EITC as a cause of improper EITC claims, IRS and Treasury legislative proposals to address EITC improper payments center on enforcement measures rather than on simplification.

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Inflation Adjustments Under Recently Enacted Tax Law

WASHINGTON — The Internal Revenue Service has updated the tax year 2018 annual inflation adjustments to reflect changes from the Tax Cuts and Jobs Act (TCJA). The tax year 2018 adjustments are generally used on tax returns filed in 2019.

The tax items affected by TCJA for tax year 2018 of greatest interest to most taxpayers include the following dollar amounts: Read more

Earned Income Tax Credit (EITC) – How A Simple Educational Letter Can Help Avert Noncompliance

Can a simple educational letter to taxpayers who appear to have erroneously claimed the earned income tax credit (EITC) actually avert future noncompliance? Based on recent TAS research studies, the answer appears to be yes.

As readers of this blog already know, the EITC is a refundable credit designed to provide financial support to low income working taxpayers, especially those with children in the household. Because it focuses on household composition, the administration of the credit is very complex. While the IRS can generally establish the age of the child from various government databases, and sometimes the parent-child relationship, it cannot easily establish other relationships nor can it independently determine with whom the child lived for over half the year, as the law requires. Read more

Amended Returns

Debra Thompson

Oops! You’ve discovered an error after your tax return has been filed. What should you do? You may need to amend your return.

The IRS usually corrects math errors or requests missing forms (such as W-2s) or schedules. In these instances, do not amend your return. However, do file an amended return if any of the following were reported incorrectly: Read more

Earned Income Credit & Other Credits

Debra Thompson

Millions of Americans forgo critical tax relief each year by failing to claim the Earned Income Tax Credit (EITC), a federal tax credit for individuals who work but do not earn high incomes. Taxpayers who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.

Last year, an estimated 21 million taxpayers received approximately $37.5 billion in EITC. However, the IRS estimates Read more