- Days left

IRS Overpaid on Tax Credit for the Poor by Up to $13.6 Billion


As Washington's battles over the budget and sequestration have played out over the past few months, pundits, politicians and analysts have flooded the airwaves and Internet with arguments about the government's spending priorities. However, amid all the bluster and bloviating, one fascinating piece of budgetary arcana has escaped much comment until now: One fairly major line item in the federal budget is, essentially, an accounting error.

On Tuesday, The Hill reported that the IRS overpaid the benefit for the Earned Income Tax Credit program by between 21 percent and 25 percent -- or $11.6 billion to $13.6 billion -- in 2012. Put in context, the FBI spent just over $8 billion on salaries that year. The Department of Education's budget for grants to primary and secondary education in 2013 is $14.5 billion. In terms of sequestration cuts, the EITC's overpayment exceeds the $9.9 billion that has been cut from Medicare, and is equal to a little less than half of the $28.7 billion that is getting stripped from all discretionary federal spending.

On the bright side, the IRS estimates that 2012 overpayment was lower than in most years; then again, over the last decade, the IRS has overpaid by up to $132.6 billion. For that matter, the program has broad bipartisan support, and most politicians agree that the overpayments have gone to a good cause: The EITC directly helps the country's poorest workers.

Under the program, a single taxpayer without children can claim up to $475 for the EITC if he or she makes less than $13,980 a year. The benefit level increases as a family's need goes up: Depending on their income and the number of children they have, claimants can receive up to $5,891. What's more, because the EITC is a refundable tax credit -- not just a deduction -- qualified taxpayers can claim it even if it totals more than their entire tax burden. In other words, it can mean a large tax refund for families facing hard financial times.

It isn't hard to see why the EITC's overpayments are so high: The limited time that the IRS has to process tax returns makes it hard for the agency to investigate all EITC claims, particularly given the hard-to-verify salary requirements. Then again, given that the EITC has been so helpful in directing money straight into the pockets of families who need it most, it is, perhaps, easy to understand why few politicians in either party are clamoring to place intense accounting restrictions on it.

Bruce Watson is DailyFinance's Savings editor. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

Increase your money and finance knowledge from home

How to Avoid Financial Scams

Avoid getting duped by financial scams.

View Course »

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

TurboTax Articles

Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

Add a Comment

*0 / 3000 Character Maximum


Filter by:

What is sad is #1 That people are so dishonest they have no issue with screwing the government and #2 The IRS has no way of actually verfifying the dependents are those of the taxpayers.

What a pathetic waste of money and total disorganization. What will the Health Care system be like then???

April 24 2013 at 4:54 PM Report abuse rate up rate down Reply
1 reply to mphilli123's comment

well.........we'll have to WAIT and see ! LOL !
anyone to wind up on medicaid due to disability knows all about IT and WE will laugh our collective arses off as they WAIT and wait and get denials or delays and these delays lead to the possibilities that surgery CAN NO LONGER alleviate the problems /as in you're not getting any surgery now-and that IS WHY THEY DELAY etc etc--oooooooooh we can't WAIT FOR ALL THE OBOMBA zombies to take a number and WAIT.....LM@O !
they were warned.

April 27 2013 at 12:26 AM Report abuse rate up rate down Reply

Where do the folks who scream for the rich to pay their "fair share" stand on this issue ? Our benevolent federal government decreed sometime ago that: Gee, if someine doesn't pay any income tax we should just give them some money. The real kicker in this article is that the 132 Billon is only what the IRS OVERPAID over a ten year period. There is no mention of the total amount given away. Meanwhile, for years I paid all the my taxes when they came due, and managed to save something along the way. As a reward the government now takes taxes from my social security payments. And, since I have no pension, my only earnings are from investments I made over the years with after tax money. Obama, et al, have now increased the taxes I pay on that income. I cannot even give any significent amount to my family without paying a gift tax. And the greedy state I live in will take a substantial amount of my estate when I die. What is the lesson here: spend it all when you earn it and enjoy the fruits of the welfare state when you get old ?

April 24 2013 at 10:51 AM Report abuse +3 rate up rate down Reply

But Obamacare will be run much better. We promise.

April 24 2013 at 10:48 AM Report abuse +2 rate up rate down Reply


April 24 2013 at 10:34 AM Report abuse rate up rate down Reply

Now just why do you think Republican Conservatives are so against big government? Of course a certain amount of government control is necessary but certainly not to the extent of our present socialistic administration in Washington which ts now in the process of wrecking the country.
Case in point; the ever developing train wreck of Obamacare?

April 24 2013 at 10:10 AM Report abuse rate up rate down Reply
1 reply to Escalonz's comment

Were you aware the over 40% of all tax returns with EITC are fraud. These people are liers and thieves. They "borrow" dependents so they can get EITC - free money to them. They are stealing the hard earned taxes we pay.

April 26 2013 at 2:25 PM Report abuse +1 rate up rate down Reply

Since the program has bipartisan support and most agree that the payments have gone to a good cause it's OK to spend up to 132.6 billion over ten years by mistake. This is beuyond sad and incompetent!!!

April 24 2013 at 9:58 AM Report abuse +2 rate up rate down Reply
1 reply to lchap17156's comment

bipartisan ?
rino_s bipartisan.

April 27 2013 at 12:29 AM Report abuse rate up rate down Reply

No tax credit should never be permitted to exceed the amount paid in by a taxpayer. "Refunding" more than the taxpayer paid in is a welfare payment. There are other agencies responsible for welfare payments. IRS is supposed to be collecting revenue, not disbursing it.

April 24 2013 at 9:56 AM Report abuse +2 rate up rate down Reply
1 reply to rfb112's comment

Right. The feds only disburse to countries that don't like us. Not US citizens.

April 24 2013 at 10:07 AM Report abuse rate up rate down Reply

Looks like its time the IRS starts AUDITING those who do NOT pay into the system INSTEAD of those who do!

April 24 2013 at 9:46 AM Report abuse +2 rate up rate down Reply

Good!!!!!!!! Make more mistakes so we the people can get back some of the money we've been robbed of.

April 24 2013 at 9:44 AM Report abuse +2 rate up rate down Reply
1 reply to dad's comment

This money goes to non payers. Those of us that pay did not get any.
This was to elect Obama. It worked.

April 24 2013 at 10:46 AM Report abuse +2 rate up rate down Reply

Sure, lets have them run healthcare too!

April 24 2013 at 9:35 AM Report abuse +4 rate up rate down Reply
2 replies to loansumlou's comment

They already have a say in it. That is why HIPPA is a joke.

April 24 2013 at 10:04 AM Report abuse +2 rate up rate down Reply

LOL Love it.

April 24 2013 at 10:08 AM Report abuse rate up rate down Reply