Earned Income Tax Credit: An Analysis of Potential Fraud and Undesirable Behaviors
Accounting and Information Systems
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The Earned Income Tax Credit (EITC) is one of the largest anti-poverty programs in the United States. Last year alone, nearly $62 billion of EITC was paid out for 2011 tax year returns (IRS 2013). The amount of total credit claimed continues to increase every year, but the rate of error (number of claims in percent of total that are filled out incorrectly) still remains constant at 21 to 26 percent (IRS 2012). This implies about 13 billion of tax credit was paid in error at the minimum for last year. Even though the credit was created based on the intention of offsetting the burden of social security taxes and providing incentives to work for low to moderate income families, deficiencies within the rules lead to tax fraud and undesirable behaviors. This thesis first examines deficiencies of EITC and some of the potential consequences through research in governmental publications and scholarly works; then provides a list of possible tax policy solutions which can assist in future law making.