Welfare and the Earned Income Tax Credit EITC

By | December 11, 2014

During the 2015 tax year, the IRS is stepping up its enforcement efforts to prevent improper payments of the Earned Income Tax Credit and the Additional Child Tax Credit, according to a new government report. The Internal Revenue Service paid out $14.5 billion in erroneous Earned Income Tax Credit payments and between $5.9 billion and $7.1 billion in improper Additional Child Tax Credit payments in Fiscal Year 2013, according to a new government watchdog report.

Welfare and the Earned Income Tax Credit EITC

The Earned Income Tax Credit (EITC) and Welfare programs increase the ability of workers in low-paying jobs to support themselves and their families. Democrats and Republicans are working to expand the program and it is very important that it has received cross party support that is vital to its future. For example,  in prior tax years, the average EITC payment to a family with children was $2,905, according to the Center for Budget and Policy Priorities.


Receiving Earned Income Credit (EITC) when on Welfare

Generally, the EITC has no effect on welfare benefits. In most cases, EITC payments are not used to determine eligibility for Medicaid, Supplemental Security Income (SSI), supplemental nutrition assistance program (food stamps), low-income housing or most Temporary Assistance for Needy Families (TANF) payments. Though unemployment benefits are not earned income, they are taxable income and may affect the amount of EITC.


Using VITA for Claiming the Earned Income Credit (EITC)

It is important for individuals who might qualify to double check their status. One way is to use free government programs that help individuals file taxes. Take advantage of a Volunteer Income Tax Assistance (VITA) program. VITA programs offer free tax help to those who generally make $53,000 or less, persons with disabilities, the elderly, and limited English speakers. Qualified individuals can receive basic income tax return preparation assistance from IRS-certified volunteers.  Publication 596, also tells taxpayers how to file the earned income credit,  however it is 39 pages long. Making the EITC simpler would both reduce error rates among honest tax filers, and help the IRS in enforcement against unscrupulous fraudsters.

Using IRS data, TIGTA estimated the potential ACTC improper payment rate for fiscal year 2013 is between 25.2 percent and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion. In addition, IRS enforcement data show the root causes of improper ACTC payments are similar to those of the EITC.


IRS EITC Compliance Process

Significant changes in IRS compliance processes would be necessary to make any significant reduction in improper payments, TIGTA pointed out. Expanded authority to allow the IRS to make corrections to tax returns when data obtained from the Department of Health and Human Services indicate the taxpayer’s refundable credit claims are not valid would help reduce improper payments. TIGTA estimates such authority could have potentially allowed the IRS to prevent more than $1.7 billion in questionable EITC payments in tax year 2012.


State EITC Programs

State EITCs might give certain residents of different states a much-needed economic boost by building on the successful federal EITC, a tax credit that has been instrumental in lifting families out of poverty and helping them make ends meet. A state EITC structured as a simple add-on to the federal credit would primarily benefit families with children.

The income ranges change each year, but those eligible in 2014 include individuals earning less than $14,590 or $20,020 for those married filing jointly with no qualifying children.


More Information about 2015 and 2016 Earned Income Tax credit (2015 EIC)