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$15.6 billion in bad EITC payments

By Kay Bell ·
Tuesday, July 15, 2014
Posted: 12 pm ET

In 2010, a new law took effect in an effort to stem Uncle Sam's payments to folks who aren't entitled to them. The Earned Income Tax Credit, or EITC, is among the payments deemed high-risk for such improper payments.

Four years later, this tax break for lower-income workers is still proving problematic.

A recent Treasury Inspector General for Tax Administration report notes that the IRS itself estimates that around a quarter of EITC payments were issued improperly in fiscal year 2013.

Those errant tax breaks are estimated to have cost the U.S. Treasury between $13.3 billion and $15.6 billion.

Estimated EITC improper payments for FY 2003-2013

Fiscal year Minimum improper payments dollars (billions) Maximum improper payments dollars (billions)
2003 $9.5 $11.5
2004 $8.6 $10.7
2005 $9.6 $11.4
2006 $9.8 $11.6
2007 $10.4 $12.3
2008 $11.1 $13.1
2009 $11.2 $13.3
2010 $15.3 $18.4
2011 $13.7 $16.7
2012* $11.6 $13.6
2013 $13.3 $15.6
Total $124.1 $148.2

* The Fiscal Year 2012 improper payment estimates were understated. The estimates do not reflect the extension of the additional EITC for families with three or more children.

Source: U.S. Treasury Performance and Accountability Reports, FY 2003-2010; U.S. Treasury Financial Reports, FY 2011-2013

$106 billion improperly paid government-wide

The House Committee on Oversight and Government Reform, Subcommittee on Government Operations, conducted a July 9 hearing on how well the IRS and other federal agencies are complying with the Improper Payments Elimination and Recovery Act of 2010.

This law basically required federal agencies each year to estimate the amount of improper payments they issue. An improper payment is defined as one that should not have been made or that was made in an incorrect amount or to an ineligible recipient. This includes not just money sent to the wrong recipients, but also overpayments, underpayments and payments that were made without proper documentation.

The tax collector is not alone in sending out money that shouldn't be paid. The subcommittee also heard from the Defense Department and Health and Human Services.

All told, according to the Government Accountability Office testimony, federal agencies reported almost $106 billion in improper payments in 2013. Those payments were made across 84 federal programs, spread among 18 agencies.

The good news is that the 2013 amount was a billion less than what was improperly paid out the prior year.

Testimony from the Office of Management and Budget also indicates that more recently, improper payment rates in major programs across the government have been reduced. Areas showing improvement, according to OMB, include Medicaid, Medicare Advantage (Part C), Unemployment Insurance, the Supplemental Nutrition Assistance Program, Pell Grants, and two Social Security programs -- Supplemental Security Income and Retirement, Survivors and Disability Insurance.

Plus, says OMB, in 2013 federal agencies recovered more than $22 billion in overpayments through payment recapture audits and other methods.

IRS still lagging on EITC payments

Unfortunately for the IRS, the TIGTA report is not such good news.

The EITC is a major anti-poverty program, but it has long been the target of lawmakers because of regular reports of abuse. Part of the problem is the tax break's complexity. This leads to honest errors as well as fraudulent claims by taxpayers and also makes it more difficult for the IRS to enforce, testified IRS Commissioner John Koskinen.

That said, the commissioner acknowledged that his agency needs to do a better job.

"It's an unacceptable rate of improper payments, an unacceptable rate of dollars out the door, and we need to do whatever we can to make a dent in it," Koskinen told the subcommittee.

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and co-author of the e-book "Future Millionaires' Guidebook."

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