IRS Improperly Paid $15.6 Billion Through Earned Income Tax Credit Program

Program deemed ‘high risk’ due to amount of improper payments

IRS building in Washington / AP
May 23, 2016

The IRS erroneously paid out an estimated $15.6 billion in Earned Income Tax Credit payments in fiscal year 2015, according to a Treasury Inspector General for Tax Administration report.

A low-income worker can receive refundable tax credits from the Earned Income Tax Credit program when they meet certain requirements for income and age.

The $15.6 billion in improper payments identified by the inspector general represented 23.8 percent of total earned income credits paid out in that fiscal year. According to the Office of Management and Budget, an improper payment is a transfer that should not have been made, was made in the incorrect amount, or was made to an ineligible recipient.

The Office of Management and Budget has classified the Earned Income Tax Credit program a "high-risk" program, making it the only IRS program with this classification.

"The [Earned Income Tax Credit] remains the only revenue program fund to be considered a high risk for improper payments despite numerous indicators that other refundable tax credits (e.g. the Additional Child Tax Credit) also potentially result in significant improper payments," the report states.

The inspector general found that the potential improper payment rate for the child tax credit program was 24.2 percent in fiscal year 2015, with improper payments totaling $5.7 billion.

"The IRS can audit potentially erroneous [Earned Income Tax Credit] claims; however, the number of claims the IRS can audit is limited by resources," the audit explains. "As a result, billions of dollars in potentially erroneous [Earned Income Tax Credit] claims go unaddressed every year."

In response to the report, the IRS said they are taking steps to make reduce payment errors.

"We continue to use every tax administration tool and technique available to us as well as vigorously explore additional data sources and partners to verify claim eligibility, deter over claims, and reduce payment errors," a spokesperson from the IRS said in response to the report.

"The IRS began taking steps in late fiscal year 2015 to improve the risk assessment process for the refundable tax credits," the spokesperson said. "As part of that effort, we are continuing to evaluate the risk assessments and identify opportunities to make them more robust."

Published under: IRS , Taxes