Earned Income Tax Credit (EITC) Department of the Treasury

The Earned Income Tax Credit (EITC) provides a tax break to low and moderate income Americans who work. For fiscal year 2016, about 27 million taxpayers received about $66 billion in EITC, making the credit one of the largest anti-poverty programs in the country. For Tax Year 2015, the maximum credit was $6,242 for a family with three or more qualifying children. Unlike other traditional benefit programs, tax filers claim the EITC on their tax returns, without a pre-approval process.

Agency Accountable Official: Dorrice Roth, Acting Chief Financial Officer, U.S. Department of the Treasury

Program Accountable Official: Jeffrey Tribiano, Deputy Commissioner for Operations Support, Internal Revenue

Total Payments
$69.8B
Improper Payments
$16.8B
Improper Payment Rate
24.02%

Supplemental Measures

Current Measure: $5.7 Billion, 1.8 Million Returns

Target: NA

Description: Cumulative erroneous payments prevented and recovered through compliance activities

Update Frequency: Annually

Data Current as of: September 2016

Current Measure: $384 Million, 26,253 Preparers

Target: NA

Description: This measures total revenue protected by EITC return preparer treatments and the number of preparers treated.

Update Frequency: Annually

Data Current as of: September 2016

Current Measure: $32.8 Million, 1,137 Preparers

Target: NA

Description: This measures the amount of paid preparer due diligence penalties under IRC section 6695(g) proposed as a result of compliance efforts and the number of preparers penalized.

Update Frequency: Annually

Data Current as of: September 2016


Program Comments

The current improper payment rate for EITC, for fiscal year 2016, is estimated to be 24% (between 22.2% and 25.9%) of all program payments – roughly $16.8 billion.  The primary source for this estimate is the IRS's National Research Program study. The study includes audits of a statistically valid subset sample of credit returns to determine accuracy of the claim.

A number of factors unique to the EITC program trigger errors.  The complexity of the law contributes to confusion around eligibility requirements, mainly qualifying child relationship and residency rules. Other factors include high program turnover of one-third annually, return preparer errors, and fraud.

Unlike other traditional benefit programs where a caseworker model results in high administrative costs and low error, the program's administrative costs are less than 1% of the program benefits. The IRS screens EITC claims for fraud and identity theft at processing, preventing improper payments. The IRS also screens returns against other criteria and now conducts approximately 400,000 audits of claims annually.

The IRS will continue to address EITC noncompliance through its aggressive compliance program which includes examinations, reviews of income misreporting, systemic corrections during tax return processing, and a focus on paid return preparers. Paid tax return preparers handle about fifty-four percent of returns claiming the EITC. IRS's EITC paid preparer strategy seeks to educate preparers on their EITC due diligence requirements and address preparer noncompliance to improve EITC compliance, decrease fraud, and reduce overall program noncompliance.

Additional information on the program is also provided annually in the Department's Agency Financial Report.