The Earned Income Tax Credit, or EITC, is a federal tax program that gives qualified low-income taxpayers money back to reduce federal taxes owed to the IRS.
This program aims to alleviate poverty and incentivize work. If the EITC on your tax return has errors or you do not qualify, the IRS may audit your earned income credit.
This post provides an overview of IRS EITC Audits.
Who Qualifies for EITC?
The following are some of the main criteria to claim EITC:
- You are a US citizen or resident alien for the full year.
- You have a valid SSN.
- You earn less than $59,187.
- You have less than $10,300 investment income.
- You do not file Form 255 for foreign income.
How Often Does the IRS Audit Taxpayers Who Claim EITC?
In 2022, the IRS audited 55% of returns with EITC. EITC claims are subject to more scrutiny due to the potential for errors or fraudulent claims.
The IRS might focus on EITC returns during tax season or after they have been filed to verify that EITC credits claimed are legitimate and that the taxpayer meets the income and eligibility requirements. The audits can happen once or more until the IRS is satisfied with your return.
Is a Taxpayer Who Claims EITC More Likely to be Audited by the IRS?
Claiming the Earned Income Tax Credit (EITC) can increase the likelihood of being audited by the IRS. As mentioned earlier, the IRS tends to scrutinize these tax returns more and may conduct additional audits.
Compared to 55% of EITC returns being audited, total tax returns audited have been less than 1%.
What are the Reasons the IRS Audits EITC Returns?
The IRS may choose to audit EITC returns to ensure that taxpayers claiming this credit are eligible and have provided accurate information. Here are some of the common reasons for the audit:
- There are discrepancies between the income reported on the tax return and those reported by employers or other sources.
- You provided an incorrect SSN for credits, dependents, or exemptions.
- The age of a child is inconsistent with the credit requirements.
- More than one person claimed a child.
- You are married and filed as single or head of household.
- You failed to include the required schedule or form, such as Form 8862 or Form 8862-SP.
- There are simple math errors on your return that lead to incorrect EITC calculations.
How Do You Know the IRS Is Auditing Your EITC Credit?
The IRS typically notifies a taxpayer of an EITC audit with notice CP75 or CP75A. The notice informs you that the IRS plans to audit your return for EITC and that you need to submit documentation to determine whether you qualify for the EITC amount claimed.
It also states that because of the audit, the IRS will hold your EITC refund pending the audit’s results.
What Information Do You Have to Provide the IRS to Verify Your EITC Claim?
If you are selected for an EITC audit, having proper documentation can help ensure that you can substantiate your credit claim. Here is some of the information that can help verify EITC:
- Social Security Numbers: You may need to provide valid SSNs for yourself, your spouse if filing jointly, and any qualifying children you claim for EITC.
- Proof of Relationship: If a claimed child is in question, you must provide documentation proving your relationship. This may include birth certificates, paternity test results, marriage certificates, official school records, or legal adoption papers.
- Proof of Income: If you underreport or overreport your income or expenses, you may be required to submit additional documentation like paystubs, copies of checks, or a letter from your employer.
- Proof of Residency: If you are a non-resident, you may need to provide a valid SSN that allows you to work in the United States and meet specific residency requirements to claim EITC.
Can You Owe the IRS If They Deny Your EITC Credit and Adjust Your Tax Return?
If the IRS denies your EITC claim and adjusts your tax return, it means they have reviewed your eligibility and determined that you do not meet the requirements for the credit. This means you can owe the IRS or have a lower refund amount depending on how much your rejected EITC claim increases your tax liability.
Typically, EITC claims have a higher error rate than other tax credits due to the complexity of the rules and requirements for claiming the credit.
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