Summary: The earned income credit, which is expected to provide about $22 billion in tax credits in 1995, is a major federal effort to assist the working poor. The credit is intended to offset the impact of Social Security taxes on low-income workers and to encourage the poor to seek employment rather than welfare. GAO testified that a reliable overall measurement of noncompliance with the earned income credit provisions has not been made since 1988, but noncompliance appears to be a problem. The Internal Revenue Service estimates that 29 percent of the returns that it examined in January 1994 claimed too much earned income credit and that about 13 percent of them may have done so intentionally. Although the credit is intended to help the working poor, the credit's eligibility criteria do not consider all of the resources that recipients may have to support themselves and their families. No one knows how many illegal aliens receive the earned income credit. If the all credit recipients needed valid Social Security numbers for work purposes, illegal aliens would no longer qualify. GAO summarized this report in testimony before Congress; see: Earned Income Credit: Targeting to the Working Poor, by Lynda D. Willis, Associate Director for Tax Policy and Administration Issues, before the Senate Committee on Governmental Affairs. GAO/T-GGD-95-136, Apr. 4, 1995 (10 pages).
