The Internal Revenue Service (IRS) is enduring a significant transformation in its approach to auditing tax returns, particularly those of lower-income individuals and households. Starting in fiscal year 2024, the agency is set to enact substantial reforms, primarily targeting a reduction in correspondence audits conducted via mail for specific tax credits.
This shift includes a focus on the earned income tax credit, a lifeline for low- to moderate-income filers, as revealed in a letter dispatched by IRS Commissioner to Senate Finance Committee Chair, Ron Wyden, D-Ore. But, how this new move will benefit your house? Well, you’ll be gratefully surprised.
The IRS to Change How Low-Income Individuals Are Audited – Is It Good for Your Family?
This sweeping change follows closely on the heels of the IRS’s recent announcement outlining its intent to harness advanced technology and artificial intelligence to streamline the recovery of unpaid taxes from higher-income earners, partnerships, and large corporate entities. The combined efforts reflect a comprehensive strategy aimed at rebalancing the IRS’s enforcement priorities.
Thus, the IRS will seek to ensure that low-income families are pressured less than large taxpayers, for the sake of a fiscal balance and in the search for real tax equality. Audits to low-income taxpayers, which rely on traditional mail correspondence, have long been a staple of IRS enforcement. However, their overuse in certain contexts has led to a reevaluation of their effectiveness, particularly concerning specific tax credits aimed at supporting lower-income individuals and families.
The earned income tax credit (EITC), a cornerstone of the tax code designed to provide financial assistance to working individuals and families with modest incomes, will be at the forefront of these changes. This credit has historically been instrumental in helping those on the lower rungs of the income ladder achieve financial stability. The IRS recognizes the importance of preserving the integrity of the EITC while ensuring that it is effectively administered to those who need it most.
What Is the Earned Income Tax Credit (EITC) And Who Qualifies to Claim It?
The IRS disbursed funds among low-income families through the Earned Income Tax Credit (EITC), which is intended to alleviate financial burdens for those who work, but still have hard times making ends meet. To qualify for the EITC, an individual or household must have earned income from employment or self-employment. Investment income must not exceed a certain limit. The filer or their family must have a valid Social Security number and be a U.S. citizen or resident alien throughout the tax year.
The EITC is available to those without qualifying children (referred to as Childless EITC) and those with one or more qualifying children. The credit amount increases with the number of qualifying children. The income limits for EITC eligibility are adjusted annually. To illustrate, as of December 2022, 31 million workers and families received about $64 billion in EITC payments. The average amount of EITC received nationwide was around $2,043. The state with the highest average EITC payment was Mississippi, with a median check of $2,459.