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Tax Bill’s Child Tax Credit Change Would Hurt 3 Million Children

November 7, 2017 at 4:15 PM

An especially egregious, and little noticed, provision of the tax bill before the House Ways and Means Committee would harm 3 million low-income children in working families by denying them the Child Tax Credit (CTC) if their parents file their taxes with an Individual Tax Identification Number (ITIN) rather than a Social Security Number (SSN).

The provision is tucked into a tax bill that’s already overwhelmingly tilted towards the wealthy, giving high-income families and large corporations large tax windfalls while providing little or nothing to millions of low- and moderate-income families. And, even worse, budget programs that help them would likely be first on the chopping block to pay for the tax breaks in the future.

As for the CTC provision, here’s the background: People who work in the United States must pay taxes on their income, regardless of their immigration status. Immigrant workers lacking an SSN file their income tax return using an ITIN. ITIN filers are generally subject to the same tax rules as other filers and are eligible for the same tax benefits, such as the CTC (including the “refundable” part that goes to those who earn too little to owe federal income tax).

The bill, however, would require filers to have an SSN to claim the CTC’s refundable part — even though these taxpayers pay federal payroll taxes as well as state and local taxes. It would also require students to have SSNs to qualify for the American Opportunity Tax Credit, which helps low- and middle-income families afford college.

Proponents describe this CTC change as an “anti-abuse” measure. It isn’t: it’s a major eligibility cut for working families who are doing nothing wrong by claiming the credit. And it would cause significant hardship, affecting roughly 3 million children in low-income working families, according to Congress’ Joint Committee on Taxation. About 80 percent of those children were born in this country and are U.S. citizens, according to the Pew Hispanic Trust. The rest are “Dreamers” — young undocumented children whose parents brought them to this country.

Only working families can qualify for the CTC, including many in which the parents work in hard jobs that often lack basic worker protections. Not only would these families experience immediate hardship if they lost access to the credit, but the children would face tougher odds in finishing high school, going to college, and earning more in adulthood, recent research suggests. The CTC changes thus could increase poverty both today and in the future.

The IRS is already acting to prevent error and fraud concerning ITINs and the CTC. It has strengthened documentation requirements for people applying for an ITIN, and a 2015 law takes further steps to combat non-compliance. Under that law, tax preparers must attest that they have asked detailed questions about the eligibility of children who taxpayers claim for the credit with an ITIN, such as whether the child resides with the filer in the United States. They also must attest that they have examined — and kept copies of — taxpayer documents verifying eligibility. Preparers who don’t comply face significant penalties.

The 2015 law also requires all holders of ITINs that the IRS issued before 2013 to revalidate their ITINs under the stricter ITIN guidelines that the IRS adopted in 2013. If they don’t, the IRS will withdraw their ITINs and they will lose eligibility for the credit.

In sum, the CTC provision in question isn’t designed to strengthen tax compliance. It’s an attempt to deny the credit to 3 million children in immigrant families.