Updated October 13th
The House voted along party lines yesterday to pass a 2018 budget plan that, in some of its accompanying documents, calls for denying the Child Tax Credit (CTC) to low-income working families that file their taxes with an Individual Tax Identification Number (ITIN) for their children rather than a Social Security number. Proponents say that’s an anti-abuse measure. In fact, it’s a significant roll-back in eligibility for the tax credit that would take it away from many working families that file their taxes but lack a Social Security number for their children, usually because the children are undocumented.
Individuals who work must pay taxes on their income, no matter what their immigration status is. Immigrant workers who lack a Social Security number can 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 can be eligible for the CTC, including the credit’s low-income (or partially refundable) component. Thus, a tax filer with an ITIN who meets the criteria for the CTC’s low-income component isn’t receiving the credit fraudulently, and a proposal to deny the credit to these filers is an eligibility cut, not an anti-fraud measure.
The proposal — to require filers to provide a Social Security number rather than an ITIN for each child they claim for the CTC — would cause significant harm. The children who would lose the credit overwhelmingly are often termed Dreamers — undocumented children who were brought to the United States by their immigrant parents — a group for whom there’s broad support for granting some type of legal status and/or taking other steps to encourage them to finish their education and become productive workers who contribute to the economy.
Roughly 1 million children, most of them in low-income working families, would lose eligibility for the CTC, Pew Hispanic Center estimates suggest. Their parents use the credit to help feed their families and keep a roof over their heads, and it goes only to working families, including many in which the parents work in tough jobs that often lack basic protections that most other workers take for granted. Many of these individuals pick crops, clean houses and offices, or care for other Americans’ children or grandparents.
The children who would lose the tax credit will continue to be part of our communities and the economy as adults. All Americans thus have a stake in ensuring that these children get the resources they need to become productive workers. Taking the CTC’s income away from poor children would not only increase poverty and hardship immediately, but would also make it less likely that these children will finish high school and go on to college, recent research indicates. Less education, in turn, would lower their future earnings and work and their contributions to the economy over time.
Finally, the IRS has taken substantial action to prevent error and fraud in the ITIN program and the CTC. In particular, it has substantially stiffened its documentation requirements for people applying for an ITIN by requiring that they provide original identity documents or certified copies of documents from the issuing agency. In addition, Congress approved and President Obama signed the PATH Act in December 2015 that further strengthens program integrity in this area. The 2015 law requires tax preparers to attest that they have asked detailed questions about the eligibility of all children who are claimed for the credit with an ITIN, and that the preparers have examined taxpayer documents verifying this eligibility and retained copies of them. Preparers face significant penalties for non-compliance.
The 2015 law also mandates that all tax filers with ITINs issued before the IRS tightened its ITIN procedures in 2013 must reapply for and revalidate their ITINs under the strict new guidelines. Those who don’t make it through the revalidation process will lose their ITINs — and their CTC eligibility.
Policymakers should let the new program integrity measures take effect, not pull the tax credit away from these children and their parents, further impoverishing them.