Why Are Low Income People More Likely to Be Audited by the IRS?
According to an article from ProPublica, people who claim the earned income tax credit are more likely to be audited by the IRS than someone who makes $400,000 a year. The average annual income of a person claiming the earned income tax credit is $20,000. So why is this benefit that was intended to help the working poor being used against them? In this blog, we explain why low income people are facing intense scrutiny from the IRS.
The earned income tax credit (EITC) is one of the United States' largest anti-poverty programs. The program gives more than $60 billion each year to households across the country.
Why Are Audits Increasing Among the Working Poor?
In the last 8 years, the IRS has seen significant budget cuts that forced the agency to cut a third of its enforcement staff. Despite audits falling across the board because of the staff shortage, the impact hasn't been the same for wealthy and low income families. For wealthy families, audits have not only become less thorough, they have also been cut in half.
For EITC recipients, audits haven't declined at nearly the same rate. In fact, audits have become more punishing for EITC recipients, who are now more likely to have their refund held thanks to a 2015 law.
With the shortage of workers at the IRS, the process for reviewing documents has a major backlog. It can take more than a year for a taxpayer to get their refund released from the IRS.
Although it is generally believed that the more money you make the more likely you are to be audited, EITC recipients seem to be the exception to this rule. Because many people accidently claim the earned income tax credit, Republicans in Congress pressured the IRS to increase the audit rate. Unfortunately, similar pressure hasn't been applied to business owners who attempt to evade taxes.
IRS data for 2017 shows that EITC recipients were twice as likely to be audited as taxpayers who made between $200,000 and $500,000.
The IRS declined to comment on any questions regarding how the agency conducts its EITC audits.
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