IRS on Earned Income Tax Credit, Immigration

During a hearing last month, Sen. Chuck Grassley asked IRS Commissioner John Koskinen about the tax consequences of the President’s unilateral action that essentially grants amnesty to five million people in the country illegally,  specifically as it relates to their eligibility for the earned income tax credit (EITC). Guidance issued by the IRS in 2000 suggests individuals benefitting from the President’s immigration action will be eligible to claim the refundable EITC for previous tax years in which they were not authorized to work in the United States.   Grassley asked Koskinen whether the IRS intended to revisit the 2000 guidance in light of the President’s executive action.  Koskinen agreed to respond and recently did so by letter.  The letter confirms the IRS intends to stick by its previous interpretation of the EITC eligibility requirements.  As a result, individuals in the country illegally who are benefitting from the President’s action will be eligible to claim the EITC for up to three previous tax years even though it would be based on earnings made while working illegally in the United States. According to IRS data, the average EITC credit in 2012 was just over $2,300 and the maximum available credit in 2014 is  $6,143.  Grassley made the following comment on this information. 

“An estimated five million people in the country illegally will remain here under the President’s executive action.  Given the IRS’ interpretation of tax rules intended to prohibit undocumented  workers from qualifying for the EITC, these individuals will be eligible to claim billions of dollars in tax benefits based on earnings from unauthorized work in the United States.  With the stroke of a pen, the President rewarded those working illegally in the United States with a tax benefit that is designed to encourage low-income individuals to enter the workforce.  Given that the IRS is intent on standing by its present interpretation of the eligibility requirements, I’m working on legislation to uphold an important principle that many of us in Congress support.  The tax code shouldn’t reward those who broke our immigration laws.”

Koskinen’s letter to Grassley is available here.

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