Study the Financial Benefits Provided to Low-Income Families Through Tax Credits and the Role of the IRS in Administering These Credits

The IRS plays a critical role in distributing financial benefits to low-income taxpayers, especially those with children, through both refundable and non-refundable tax credits. They are responsible for fostering participation in the tax return filing system for taxpayers to receive eligible benefits, processing tax returns claiming these credits, and ensuring that the credits are only paid to individuals who meet the legal requirements to receive these benefits. Taxpayers often have difficulty understanding the complex legal requirements to claim many of these credits, particularly since the eligibility rules often stem from a time when family structures were vastly different. The IRS often has an equally difficult time determining if a taxpayer is eligible for the credit and often lacks the necessary resources to stop all ineligible claims. This study aims to determine the population of children who could benefit from these tax credits, absent the ability of their caregivers to meet complicated and technical eligibility requirements. In addition to conducting its own research, TAS will obtain input and analyses of other experts in this area to create insights that will assist policymakers in considering new legislation to lift more children out of poverty, improve the administrability of tax credits for low-income taxpayers, and reduce improper claims of these credits

The impact of the EITC and the Other Dependent Credit to low-income taxpayers is extensive. For tax year (TY) 2022, taxpayers filed nearly 23 million returns claiming EITC benefits worth nearly $58 billion. These same taxpayers claimed over $11 billion in the Other Dependent Credit on TY 2022 returns. TAS published a study in the National Taxpayer Advocate 2022 Annual Report to Congress that significantly focused on splitting the EITC between a worker and a child credit and the potential impact of changes in the EITC structure on reducing the EITC improper payment rate. This study will further examine possible ways to reduce the EITC improper payment rate and explore the effect on other tax credits available to low-income families, the economic impact of these credits, and the role of the IRS in administering these credits..