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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.

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mphilli123

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
setanta995

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
darrthom

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
steel4cal

But Obamacare will be run much better. We promise.

April 24 2013 at 10:48 AM Report abuse +2 rate up rate down Reply
groman00

unbelievable

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

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
2 replies to Escalonz's comment
GEE

Bush was a huge spender!

April 24 2013 at 10:14 AM Report abuse rate up rate down Reply
1 reply to GEE's comment
jsujet

Liar, do some research.

April 26 2013 at 6:45 AM Report abuse rate up rate down
passtax

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
lchap17156

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
setanta995

bipartisan ?
rino_s bipartisan.

April 27 2013 at 12:29 AM Report abuse rate up rate down Reply
rfb112

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
aaldrew

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
RANDYTHOMAS711

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
dad

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
steel4cal

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
loansumlou

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
Carol

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
aaldrew

LOL Love it.

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