Obamacare

Since I do income tax for AARP each year, I am familiar with the tax rules regarding child tax credit and earned income credit. Both of these programs have been abused and have led to fraud on a wide spread scale. The IRS routinely issues Individual Taxpayer Identification Numbers (ITIN) to people who file tax returns but who are not eligible to work in the United States, and that is another whole subject. When filing many file as parents and receive a $1,000 tax credit for each child. It comes in two ways. First if you own $2,000 in tax and you have three children you do not have to pay any tax. You also get a refund of $1,000 through the additional tax credit rule giving you a refund even though you didn’t pay any tax. If you have five children and you owe zero tax you can collect a $5,000 refund through the additional child tax credit. As you might expect this has led to a lot of cheating. A 2011 Treasury Department study found the IRS paid illegal immigrants $4.2 billion in Additional Child Tax Credit refunds in 2010, representing nearly one-fifth of all ACTC refunds paid that year. A similar situation occurred with the earned income credit which offers up to $5,700 in credits on deductions The Earned Income Credit is a federal welfare program. As the notice explained - “Unlike most deductions and credits, the EITC is refundable –– taxpayers can get it even if they owe no tax. For 2011 tax returns, the maximum credit will be $5,751.” It is probably the most expensive federal welfare program. The notice further pointed out that – “For 2009, over 26 million people received nearly $59 billion through the EITC.” Because it is refundable the Earned Income Credit is a magnet for tax fraud. That brings us to the latest change in Obamacare announced this weekend. This program is designed to offer subsidies to low income people to help pay for health insurance but the government is not prepared to check on these people so they will accept their word that they are eligible . This subsidy is refundable meaning you get it even if you don’t pay any tax and the subsidies are paid on a declining scale up to a family income of $94,000 per year. For a family earning $40,000 the credit is $16,000 so this is a much larger program that either the child tax credit or the low income credit so the fraud is likely to be larger. The reason for doing this is to get more people to sign up so the program will become a part of family life and difficult to repeal. The question remains as to how many of those who sign up are legitimate?