The United States federal earned income tax credit or earned income credit EITC or EIC is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends on a recipient's income and number of children. For a person or couple to claim one or more persons as their qualifying child, requirements such as relationship, age, and shared residency must be met. EITC phases in slowly, has a medium-length plateau, and phases out more slowly than it was phased in. The earned income tax credit has been part of political debates in the United States over whether raising the minimum wage or increasing EITC is a better idea. In , Richard Nixon proposed the Family Assistance Plan , which included a guaranteed minimum income in the form of a negative income tax.
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This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.
Heald tigta. July 20, Deputy Inspector General for Audit. The overall objective of the review was to determine the impact of the elimination of the TeleFile Program on individual taxpayers and the IRS electronic filing program.
The TeleFile Program allowed an average of 4. In August , the IRS discontinued the TeleFile Program, citing increasing costs and declining participation, and ended one of two free electronic filing methods provided to taxpayers. Discontinuance of the TeleFile Program increased the cost and burden of filing a tax return for many individual taxpayers.
In addition, almost , taxpayers reverted to filing paper tax returns, thus losing the benefits of faster refunds that electronic filing provides. These figures do not include those taxpayers who would have become eligible to use TeleFile for the first time in but had to choose other methods to file their income tax returns. Furthermore, this action removed one of only two free electronic filing methods at a time when the IRS was focusing on increasing the number of electronically filed tax returns.
There are many factors, such as advances in technology or changing taxpayer preferences, that may have led to the eventual elimination of the TeleFile Program. We analyzed a statistical sample of taxpayers who used the TeleFile Program in to determine how they were affected by the elimination of the Program. Approximately 68 percent of of the taxpayers in our sample would have continued to be eligible for the TeleFile Program had it continued unchanged.
Based on our sample results, approximately 2 million taxpayers who had previously used TeleFile would have been eligible for the Program in Our estimate does not include taxpayers who would have been new to the Program. We further evaluated our sample to determine how former TeleFile users filed their tax returns in Of those taxpayers who would have remained eligible to use TeleFile, 29 percent 80 of of the taxpayers in our sample incurred a cost to file their tax returns in These costs included either the purchase of tax preparation software packages and related fees to file their returns online from their homes or fees paid to tax professionals to prepare and file their tax returns.
Another impact of eliminating TeleFile was that 48 percent , taxpayers of the approximately 2 million former TeleFilers reverted to filing a paper tax return. The free filing alternatives the IRS provided in its notification to affected taxpayers were not comparable to TeleFile. Many contained filing or income restrictions, required access to computers and the Internet, or were overly burdensome when compared to the TeleFile Program.
The IRS cited a number of reasons for its decision to end the TeleFile Program, including increased processing costs and decreased taxpayer participation. However, we determined the information the IRS used to support its decision contained errors and was incomplete.
For example, errors in the methodology and data the IRS used to compute and compare the cost-per-return for each of its three processing methods paper, electronic, and TeleFile may have overstated the differences among the processing methods.
We have indications that, if corrected, the differences among the processing methods may not have justified eliminating the TeleFile Program when the IRS did. The Treasury Inspector General for Tax Administration has advised the IRS on multiple occasions that it needs to improve the quality for and timing of data used to make decisions. While the IRS must continue to become as efficient as possible, it is imperative that decisions regarding its customer service and return processing programs include an accurate and timely evaluation of the costs and benefits of those programs, as well as the impact and burden on taxpayers.
We did not include recommendations because our concerns regarding the use of inaccurate and incomplete data to support program decisions have been previously reported to the IRS. The IRS believes it acted appropriately in choosing to end the TeleFile Program when it did and elimination of the Program is unlikely to have any long-term, negative consequences to achievement of its electronic filing goals.
Management also stated the fact that many former TeleFile users who qualified but chose not to use the IRS Free File Program did not necessarily mean eliminating the TeleFile Program increased taxpayer burden.
Former TeleFile users must now choose among the remaining return preparation and filing methods. Many taxpayers are either ineligible for or unable to conveniently access one or more of the free options, and they now incur costs for return preparation and filing. Copies of this report are also being sent to the IRS managers affected by the report findings. Please contact me at if you have questions or Michael E.
Table of Contents. Results of Review. Electronic Tax Administration. Electronic Tax Administration Advisory Committee. Fiscal Year. Internal Revenue Service. Treasury Inspector General for Tax Administration. Tax Year. The TeleFile Program allowed taxpayers meeting certain criteria to file their tax returns using the keypads on their telephones.
The Program was the only electronic filing method offered by the Internal Revenue Service IRS that did not require third-party involvement. By , taxpayers could file the following forms through the TeleFile Program:. Individual Income Tax Return Form An average of 4. For taxpayers to use TeleFile, they must have first received a TeleFile tax package in the mail and then met the qualification requirements found in the Package.
See Appendix V for the specific requirements to use TeleFile. The Program was promoted as the most convenient, quickest, and simplest way to file a Federal tax return.
It was free and was the only completely paperless direct-filing method the IRS offered. TeleFile returns, along with other electronically filed returns, were also more accurate than returns filed on paper. The TeleFile Program had a satisfaction rate of over 90 percent, the highest of all the filing options in Management also stated the use of a telephone to file tax returns was considered obsolete because of the widespread use of computers and the Internet.
Figure 1 presents a general timeline of events relative to the elimination of the TeleFile Program. A detailed timeline is included in Appendix VII. TeleFile is implemented. IRS considers ending TeleFile. IRS evaluates cost and usage. IRS studies free filing alternatives. IRS decides to end TeleFile. TeleFile ends. The decision to discontinue the TeleFile Program followed a recommendation made by the Electronic Tax Administration Advisory Committee ETAAC , which consists of members selected by the IRS to represent a broad spectrum of the private sector including tax preparers, tax software developers, payroll companies, financial institutions, small businesses, State Governments, and taxpayers.
Once the Program was eliminated, taxpayers who had used it would have to find another method to file. The audit was conducted in accordance with Government Auditing Standards. Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II. It also identified the tax return filing alternatives available to TeleFile users. Notwithstanding, when the IRS made the decision to eliminate the TeleFile Program, it does not appear it adequately factored in the burden and increased costs many taxpayers would experience if the Program was discontinued before comparable free electronic return filing alternatives were available.
Taxpayers who had previously filed for free paid to file their returns. Discontinuing the TeleFile Program ended a free and simple electronic filing method for millions of taxpayers. We selected a statistical sample of taxpayers who had used the TeleFile Program in and filed a tax return in to determine how these taxpayers filed their returns after the TeleFile Program was discontinued.
Approximately 68 percent of the taxpayers in our sample would have been eligible to continue to use TeleFile in if the Program had continued unchanged. Based on our sample, we estimate approximately 2 million taxpayers who had previously used TeleFile would have continued to be eligible for the Program in Our estimate does not include those taxpayers who would have been able to use the Program for the first time.
Taxpayers have a choice when selecting a return filing method. Some taxpayers would have chosen to leave the TeleFile Program on their own. However, an IRS study of TeleFile users indicated taxpayers who chose to use the Program were extremely loyal and repeat users. We found that 29 percent 80 of of the taxpayers in our sample who would have remained eligible for the Program incurred a cost to file their tax returns in Figure 2 shows the tax filing methods used by those taxpayers in our sample who incurred costs, either by purchasing tax preparation software or paying a tax practitioner to prepare and file their tax returns.
Figure 2 was removed due to its size. Based on our statistical sample, we estimate more than , taxpayers who would have remained eligible for TeleFile incurred some cost to file their returns in See Appendix IV for details. A significant number of former TeleFile users reverted to filing paper tax returns. The IRS was concerned about taxpayers who had used TeleFile in the past but who do not have their own Internet access.
The United States Department of Commerce reported from its October population survey that only The IRS was concerned a significant number of these taxpayers would file a paper tax return. Approximately 48 percent of former TeleFile users filed a paper return in Approximately 48 percent , of the 2 million taxpayers who would have been eligible for TeleFile, had it continued, reverted to filing paper tax returns. Processing a paper tax return also takes longer than processing an electronic return, meaning taxpayers may have had to wait longer for their refunds.
Figure 3 shows the methods used by former TeleFile users to file their tax returns in Figure 3 was removed due to its size. Increased filing of paper returns affects the IRS as well as taxpayers.
Also, because paper returns are more likely to contain errors, the number of taxpayers who reverted to filing paper tax returns appears to explain the correlating increase in error volumes on paper Forms EZ during the Filing Season. The number of errors on paper Forms EZ increased by 76, from , as of September 23, , to , as of September 29, Errors on tax returns increase the burden on taxpayers, who have to respond to error notices, and the IRS, which has to resolve the errors.
The TeleFile Program was discontinued before comparable free alternatives were available. Of the approximately 2 million taxpayers who would have continued to be eligible for TeleFile, we estimate almost 12 percent , would not have qualified to use 1 of the other free filing services at the Taxpayer Assistance Centers or through a volunteer program.
Earned income tax credit
Individual Income Tax Forms