The Earned Income Tax Credit Still Faces High Error Rate

January 12, 2015

The Treasury Inspector General for Tax Administration released a report on Earned Income Tax Credit Compliance. According to the report, the credit still faces a higher error rate.

“The IRS’s Fiscal Year 2013 EITC improper payment report to TIGTA estimates that in Fiscal Year 2013, EITC claims totaled approximately $60 billion and that 24 percent of the EITC payments were paid in error.”

A 24 percent error rate meant $14.5 billion in tax dollars that were improperly paid out to individuals in FY 2013.

The error rate in 2013 is actually slightly lower than the average over the past decade. In fiscal year 2003, the error rate was 28 percent. Since then, it remained between 23 and 26 percent. The cost each fiscal year (adjusted for inflation) has also remained relatively stable, except in 2009 when the program was expanded greatly with the stimulus package. In total, Earned Income Tax Credit payment error has cost the federal government $151 billion dollars over the past decade.

EITC Error Rate has Cost the Federal Government $151 billion over Ten Years

Fiscal Year

Error Rate

Error Amount (Billions of 2013 Dollars)

2003

28%

$13.33

2004

25%

$12.04

2005

26%

$12.64

2006

26%

$12.39

2007

26%

$12.91

2008

26%

$13.14

2009

26%

$13.34

2010

27%

$18.06

2011

24%

$15.86

2012

23%

$12.81

2013

24%

$14.50

Ten Year Total:

$151.02

There are several reasons why the EITC faces high levels of improper payments. One major reason is that the program is rather complex (a more than 90 page instruction booklet). This leads to people making mistakes while filing their taxes. Additionally, fraud is likely a factor, either by individuals or by tax preparers.

Either way, the high rate of error is concerning due to its high cost to taxpayers and the fact that the dollars are not reaching the people they were meant to. The EITC is a good target for reform.

More on the EITC here and here


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