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Tag 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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The IRS Might Recover EITC Using Its Newly Discovered Post-Processing Math Error Authority, But Is It Constitutional?

Nina Olson- IRS Might Recover Earned Income Tax Credit

My June Report to Congress included an Area of Focus entitled: “The IRS Has Expanded Its Math Error Authority, Reducing Due Process for Vulnerable Taxpayers, Without Legislation and Without Seeking Public Comments.”  The post-processing math error issue came up after a report by the Treasury Inspector General for Tax Administration (TIGTA) said the IRS improperly paid refundable credits, including the Earned Income Tax Credit (EITC), to those filing 2016 returns with taxpayer identification numbers (TINs) (e.g., Social Security Numbers) that were issued after the due date of the returns. TINs are long strings of numbers that can easily contain typos. The IRS committed to “evaluate this population for inclusion in the appropriate post-refund treatment program.”  Perhaps because it costs $1.50 to resolve an erroneous EITC claim using automated math error authority (MEA) compared to $278 for an audit (according to TIGTA), the Wage and Investment Division (W&I) planned to use MEA to recover these credits in 2018.

I asked Counsel about the legality of using MEA to disallow credits long after the IRS had processed the returns (i.e., post-processing) and paid them. Counsel responded on April 10, 2018, with a Program Manager Technical Advice (PMTA) that approved the practice (here). It concluded there were no due process concerns. This blog explores the due process that the government may be constitutionally required to provide before recovering EITC from those who depend on it to survive.

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How To Prepare Taxes For Deferred Action For Childhood Arrivals (DACA) Recipients

On June 15, 2012, the U.S. Department of Homeland Security (DHS) announced that it would not deport certain undocumented youth who came to the United States as children. Under a directive from the DHS secretary, these youths may be granted a type of temporary permission to stay in the U.S. called “deferred action.” The Obama administration called this program Deferred Action for Childhood Arrivals, or DACA. This article is designed to provide guidance for tax professionals preparing and filing tax returns for DACA recipients.

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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

Some Taxpayers Eligible For A Refund And Do Not Even Know It

Taxpayers who are not required to file a tax return may want to do so. They might be eligible for a tax refund and don’t even know it. Some taxpayers might qualify for a tax credit that can result in money in their pocket. Taxpayers need to file a 2017 tax return to claim these credits.

Here is information about four tax credits that can mean a refund for eligible taxpayers:

  • Earned Income Tax Credit. A taxpayer who worked and earned less than $53,930 last year could receive the EITC as a tax refund. They must qualify for the credit, and may do so with or without a qualifying child. They may be eligible for up to $6,318. Taxpayers can use the 2017 EITC Assistant tool to find out if they qualify.

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Idaho Keeps Sales Tax On Groceries

Annette Nellen

Many states exempt groceries from sales tax per the premise that food is a necessity of life. This is a poorly targeted exemption though in terms of helping low-income taxpayers. Higher income individuals spend more on food so get the bulk of the tax savings. If instead, groceries were taxed, tax relief could be better targeted to the taxpayers who need it via a refundable income tax credit based on income.

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5 New Tax Myths Debunked By The IRS

Barry Fowler

It’s true that this tax season some taxpayers have been unaware of a new rule that requires the IRS to hold tax refunds for taxpayers who claim the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit. As a result, the IRS has acknowledged that there are now a number of “misunderstandings and speculation about refunds.”

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New Required Preparer Due Diligence: AOTC & Child Tax Credit

Annette Nellen

The addition of these two credits to the required due diligence of paid preparers in preparing a return that claims either or both was made by the PATH Act (P.L. 114-113, 12/18/15). The statutory language added at §6695(g) implied that regulations were needed. The IRS released draft Form 8867 and instructions in summer 2016, but did not release the regulations until 12/5/16. [TD 9799 (12/5/16) and REG 102952-16 (12/5/16)]

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Filing Deadline And Some Refunds To Be Delayed

Harold Goedde

The IRS will not accept tax returns until January 23, 2017. The filing deadline will be April 18 due to April 15 falling on Saturday and the Emancipation Day holiday in Washington D.C. on April 17.

Congress (in the PATH Act) mandated the IRS to delay some refunds until February 15.

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Employer EITC Notice To Employees – New CA Requirement!

Annette Nellen

Several states require employers to notify employees that they may be eligible for the federal (and perhaps also state) Earned Income Tax Credit (EITC). This year, California law was changed to require employers to also notify employees about the California EITC recently added to the law.

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Deciphering Campaign Tax Proposals

Annette Nellen

Here is my 15 minute presentation to the San Jose Rotary Club delivered today (May 11) on deciphering campaign tax proposals and helping members increase their tax policy savviness.

Deciphering Campaign Tax Proposals

Presentation delivered to Rotary International San Jose Chapter (District 5170) on May 11, 2016. 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