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Congress Should Reject Misguided Child Tax Credit Measure

The House Ways and Means Committee will vote this week on a proposal to deny the Child Tax Credit to low-income working families that file their taxes with an Individual Tax Identification Number (or ITIN) rather than a Social Security number.  Proponents say it’s an anti-abuse measure, but it’s really a substantial cut in eligibility for the credit that would take the credit away from several million working families that file their taxes but lack a Social Security number, in most cases because they’re undocumented.  It thus would increase hardship and push several million low-income children and their parents into, or deeper into, poverty.

Individuals who work in America must pay taxes on their income, no matter what their immigration status is.  Immigrant workers who lack a Social Security number file tax returns with an ITIN, which the IRS provides them (upon application) to encourage them to file tax returns and pay taxes.  ITIN filers are largely subject to the same tax rules as other filers and they’re eligible for the Child Tax Credit, including the low-income (or refundable) component of it.

Thus, a tax filer with an ITIN who meets the criteria for the refundable Child Tax Credit doesn’t receive the credit fraudulently, and a proposal to bar such filers from receiving it is an eligibility cut, not an anti-fraud measure.

Such a cut would cause significant harm. The Joint Committee on Taxation estimates that it would cause 1.5 million low-income working families with 3 million children to lose the Child Tax Credit, which would increase poverty and hardship for many of them. About 80 percent of children who would be adversely affected were born in this country and are U.S. citizens, according to the Pew Hispanic Center.  Their parents use the credit to help feed their families and keep a roof over their heads.  And as noted, these benefits go only to working families, including many in which the parents work in tough jobs that often lack basic protections that most workers take for granted.  Many of these individuals pick crops, clean houses and offices, or care for other Americans’ children or grandparents.

The other 20 percent of children who would lose the credit are DREAMers (children brought to the United States by their immigrant parents), for whom there is broad support to grant legal status or take other steps to encourage them to finish their education and become productive workers who contribute to our economy.  Research indicates that taking this income from these families and children would not only increase poverty in the short run but also make it less likely that these children finish high school and go to college.  Less education would depress their future earnings and employment and thereby reduce their contributions to the economy over time.

Finally, regarding fraud and abuse, the IRS has taken substantial action to prevent error and fraud in the ITIN program and Child Tax Credit and will soon launch a battery of new actions.  The IRS has substantially stiffened its documentation requirements for people who apply for an ITIN by requiring that they provide original identity documents or certified copies of documents from the issuing agency.  In addition, Congress and President Obama enacted tax legislation in December 2015 (the PATH Act) with new provisions to strengthen program integrity in this area.  It requires tax preparers to attest that they have asked detailed questions about the eligibility of children that the ITIN tax filer claimed for the credit, and that they examined taxpayer documents verifying eligibility and kept copies of them.  Preparers face significant penalties for non-compliance. 

In addition, all tax filers with ITINs issued before the IRS tightened the ITIN procedures in 2013 must revalidate their ITINs under the stricter new guidelines.  Those who don’t make it through the revalidation process will lose their ITINs and their eligibility for the Child Tax Credit.

Policymakers should let the new program-integrity measures take effect, not rip the tax credit away from all of these children and their parents and further impoverish them.

Policy Basics
Tax Credits for Individuals and Families