Millions forgo tax break, IRS says

Campaign begins today to tell filers about earned income credit or refund

January 20, 2004|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

Millions of lower-income workers fail to claim a credit that can reduce their tax bill or give them a refund, and the Internal Revenue Service today is announcing a campaign to reach out to these filers.

About 25 percent of those eligible for the earned income tax credit forgo the benefit, said David R. Williams, director of the EITC for the IRS. That comes to about 6 1/2 million people.

"It's almost $3 billion worth of unclaimed EITC dollars left on the table in an average year," Williams said. "We want people to know about it and claim it if they are eligible."

A tax credit reduces a filer's bottom-line tax bill dollar-for-dollar, making it more attractive than a deduction. The EITC goes one better, though. It's a "refundable" credit, so even filers who pay no tax get a refund.

As part of the outreach, 14,000 volunteer tax preparer sites will open next month to help people with EITC claims and prepare tax returns for free, Williams said. (Filers can call 1-800-829- 1040 to find the center nearest them.)

The agency also has created a Web site to address professional tax preparers' questions about the credit at

And the IRS will launch a pilot program in Miami and Los Angeles to get the word out to taxpayers who don't speak English. It will include town hall meetings, neighborhood canvassing and radio and television promotions, Williams said.

Last year, more than 20 million people claimed the credit for a total of $36 billion, including 321,827 Marylanders who received $540.4 million.

The amount of the credit depends on the filer's income and family size. The maximum credit is $4,204 for a filer with two or more children and $382 for a taxpayer with no children.

To claim a full or partial credit, an individual with two or more children must have adjusted gross income of less than $33,692. Income must be less than $11,230 for an individual with no children.

The credit, created in 1975 and applauded for pulling many families out of poverty, continues to confuse filers year after year with its complex rules.

For example, Williams said, many people don't realize that the program was expanded a decade ago to include individuals without children. And the IRS has found that professional tax preparers are just as likely to make errors concerning the credit as individual filers.

The credit has also been beset with claims made through fraud as well as honest mistakes. One IRS report found that as much as $9.9 billion of the $31.3 billion paid out in credits in 1999 should not have been made.

The IRS launched a pilot test last month to reduce the high error rate. The agency sent letters to 25,000 filers who claimed the credit last year, requesting proof that children claimed under the credit resided with the filer.

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