Relatively few taxpayers are making use of the Advanced Earned Income Tax Credit, but many of those who do receive the AEITC do not comply with the requirements of the program, according to a government report.
The Government Accountability Office found that only about 3 percent of EITC recipients who are potentially eligible for the advance in their paychecks received it in tax years 2002 to 2004. That translated to about 514,000 of the 17 million potentially eligible individuals each year.
The IRS has been trying to increase that rate over the past 15 years by sending notices to people who may be eligible to receive the advance in their paychecks. But because the amount of the advance is relatively low, many people elect to receive the full EITC at the end of the year as a single lump sum. About half of AEITC recipients received $100 or less for the year, while 75 percent received $500 or less.
Still, up to 80 percent of AEITC recipients did not comply with at least one of the requirements of the program. From tax years 2002 to 2004, 20 percent of them, or more than 100,000 AEITC recipients, had invalid Social Security numbers. Nevertheless, they received a total of between $37 million and $39 million each year.
In addition, nearly 40 percent, or about 200,000 recipients, did not file the required tax return. They received between $42 million and $50 million each year. And of the 60 percent, or more than 300,000, AEITC recipients who did file a return, about two thirds of them misreported the amount they received.
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