Trump budget plan would tighten requirements for refundable tax credits

The Trump administration’s budget blueprint for fiscal year 2018 would require a Social Security number for claiming either the Earned Income Tax Credit or the Child Tax Credit in an effort to deny the refundable tax credits to undocumented immigrants.

For both credits, the requirement would apply to taxpayers, spouses and all qualifying children, according to a document detailing the major savings and reforms in the budget plan. “Under current law, households who do not have SSNs that are valid for work, including illegal immigrants who use Individual Taxpayer Identification Numbers, can claim the CTC, including the refundable portion,” said the document. “This proposal would ensure that only individuals who are authorized to work in the United States could claim these credits.”

The budget plan aims to ensure that only people who are authorized to work in the U.S. receive the EITC and the CTC. Under current law, the document noted, households who do not have Social Security numbers that are valid for work, including undocumented immigrants who use ITINs, can claim the Child Tax Credit, including the refundable portion. The proposal would also fix what the White House considers to be “gaps” in the current administrative practice for EITC filers that allow some people who have SSNs that are not valid for work to still claim the EITC.

“Since the EITC is a work support, only those people who are lawfully eligible to work in the United States should be able to claim it,” said the budget plan.

The EITC has long been held up as a way to incentivize low-income people to work, although it and the Child Tax Credit have been found to be especially prone to improper tax refund payments. The Treasury Inspector General for Tax Administration issued a report in late 2014 estimating the potential improper payment rate for the Additional Child Tax Credit in fiscal year 2013 was between 25.2 and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion (see IRS urged to crack down on improper EITC and ACTC payments). The IRS estimated it paid $63 billion in refundable EITCs and $26.6 billion in refundable ACTCs for tax year 2012. The IRS estimated that 24 percent of all EITC payments made in fiscal year 2013, or $14.5 billion, were paid in error.

Earlier this month, TIGTA issued a report updating its estimates of improper payments for the EITC, ACTC and the American Opportunity Tax Credit, which covers education expenses. It estimated the IRS issued 24 percent ($16.8 billion) in EITC payments improperly in fiscal year 2016.

In addition to the new tax credit requirements, the Trump administration’s budget proposal would again cut the IRS’s budget along with the budgets of a host of other federal agencies. The National Treasury Employees Union, which represents IRS employees, said the additional $239 million in cuts would eliminate 5,800 full-time employees. The union noted the IRS has already lost nearly $1 billion in funding over the last several years, along with 18,000 employees. It said the IRS’s ability to provide taxpayer assistance would be further diminished, and the 5,800 positions that would be eliminated would include 4,000 people whose job it is to help taxpayers.

“The proposed $239 million cut to the IRS is another example of short-sightedness,” NTEU national president Tony Reardon said in a statement. “How can we consider further hamstringing the agency responsible for collecting 93 percent of the money that keeps our country running? This only makes our country’s financial situation worse.”