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GAO-02-290R 1 (2001-12-14)

handle is hein.gao/gaocrptanxw0001 and id is 1 raw text is: SGAO Accountability * Integrity * Reliability United States General Accounting Office Washington, DC 20548 December 14, 2001 The Honorable William J. Coyne Ranking Minority Member Subcommittee on Oversight Committee on Ways and Means House of Representatives Subject: Earned Income Tax Credit Eligibility and Participation Dear Mr. Coyne: The Earned Income Tax Credit (EIC), which is expected to provide over $30 billion in refundable credits in fiscal year 2002, is a major federal effort to assist the working poor. The EIC is intended to offset the burden of the Social Security payroll tax on low-income workers and to encourage low-income individuals to work. The amounts of credit that taxpayers receive depend on the taxpayers' incomes and the number of qualifying children they have.' Taxpayers must file a tax return in order to claim the credit. Prior evidence suggests that many eligible households have not received the credit.2 You asked us to provide estimates of (1) the number of eligible households and the number of those who did and did not participate in the EIC program and (2) the amounts of credit foregone by nonparticipating households. You also asked that we provide these estimates disaggregated by the number of qualifying children in the households claiming the credit. We used data from the Census Bureau's Current Population Survey (CPS) for 1999 to estimate the number of households eligible for the EIC. We obtained estimates from the Internal Revenue Service (IRS) for the number of eligible taxpayers who claimed the EIC for tax year 1999. Because the CPS and IRS data are based on samples, our estimates are subject to sampling error. 3 In addition, the CPS database, while useful for estimating EIC eligibility, do not contain all of the data needed to definitively determine EIC eligibility. Our methodology and its limitations are described in further detail in the enclosure. We sent a draft of this correspondence to IRS for I A qualifying child must meet a relationship test (with respect to the taxpayer claiming the credit), an age test, and a residence test. In tax year 2001 the maximum amount of credit that a taxpayer with no qualifying children can earn is $364. The maximum for a taxpayer with 1 qualifying child is $2,428, and the maximum for a taxpayer with 2 or more qualifying children is $4,008. 2 See, for example, John Karl Scholz, The Earned Income Tax Credit: Participation, Compliance, and Antipoverty Effectiveness, National Tax Journal, Vol. 47, no. 1, (March 1994), pp. 63-87. 3 The sampling errors measure the extent to which samples of different sizes are likely to differ from the populations that they represent. Each of the sample estimates in tables 1 and 2 is surrounded by a 95-percent confidence interval indicating that we are 95-percent confident that the interval contains the actual population value. In the tables, the upper and lower limits of the intervals are indicated by the value added to and subtracted from the estimate. GAO-02-290R Earned Income Tax Credit Participation

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