As IRS Commissioner Charles Rettig took the hot seat on Capitol Hill for two days’ worth of testimony this week, lawmakers jumped at the chance to grill him on problems concerning one tax credit typically awarded to low-income Americans.
The Earned Income Tax Credit (EITC) aims to subsidize working families with low-to-moderate incomes – who generally receive a credit equal to a percentage of their earnings up to a certain maximum amount. A substantial portion of the support is awarded to workers with qualifying children, while support is given at varying levels. Married couples with more children tend to receive more money.
However, overpayments in 2018 for the earned income tax credit were $18 billion, up from $16 billion in 2017. Some of the overpayments are likely the result of fraud, which has sparked backlash among conservative members of Congress.
People who claimed the EITC were twice as likely to be audited by the IRS than those with incomes between $200,000 and $500,000. These people accounted for 36 percent of all audits in 2017. That has led to a large amount of criticism, particularly among Democrats, who have criticized the agency for appearing to target lower-income Americans.
According to Rettig, complications related to the EITC arise because of the definition of what constitutes a qualifying child. Children must meet certain relation, age, residency and other requirements in order to qualify.
He referred to the tax credit as a “very complex part of the internal revenue code.”
The result, the IRS head said, is that about 25 percent of claims are audited, which still results in a net overpayment of more than $18 billion.
Refunds for people claiming the EITC were statutorily delayed until mid-February.
Rettig said the IRS is trying to get the returns correct based on the information it has. The agency has provided outreach and education through tax forums, for both preparers and filers, adding that the EITC is an issue the agency “has a lot of resources devoted do.”
He added, however, that fully addressing the issue is likely to require a congressional adjustment to the statute itself.
During 2018, 25 million eligible workers and families received about $63 billion from the credit. The average amount received was $2,488, according to the IRS. Anyone with earning of under $54,884 can check to see if they qualify.