Require Earned Income Tax Credit and Child Tax Credit Claimants to Have a Social Security Number That Is Valid for Employment

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-2021 2017-2026
Change in Revenues 0.2 4.7 4.4 4.3 4.2 4.1 4.0 3.9 3.7 3.7 17.8 37.4

Source: Staff of the Joint Committee on Taxation.

This option would take effect in January 2017.

The estimates represent the change in the overall budget balance that would result from the sum of changes to revenues and outlays.

The earned income tax credit (EITC) and the child tax credit provide assistance to low- and moderate-income workers. Both credits are refundable: If the amount of the credit is greater than the amount of income taxes owed by the taxpayer before the credit is applied, the government pays the excess to that person. Eligibility for the EITC and the refundable portion of the child tax credit is limited to people with income from wages, salaries, or self-employment.

Eligibility requirements for the two credits differ for noncitizens, however—especially the rules governing the provision of Social Security numbers. For purposes of determining eligibility for the EITC, a noncitizen's Social Security number is considered invalid if it was issued by the Social Security Administration (SSA) solely to allow that individual to obtain benefits from a program entirely or partly financed by the federal government. In contrast, noncitizens can claim the child tax credit if they and their children have either Social Security numbers (including those issued to individuals for the sole purpose of receiving government benefits) or individual taxpayer identification numbers (ITINs), which are issued by the Internal Revenue Service (IRS) to anyone (including unauthorized residents) who is required to file a tax return but cannot obtain a Social Security number.

Some people who are not authorized to work in the United States can receive the EITC under current law. Those individuals were issued Social Security numbers before 2003 because they needed them to obtain drivers' licenses and to open bank accounts. SSA no longer issues Social Security numbers for such purposes, but the agency was not able to rescind the numbers obtained before the ban. Because those numbers were provided to people who were not applying for federal benefits, their Social Security numbers are considered valid for purposes of receiving the EITC.

Under this option, people who are not authorized to work in the United States would not be entitled to either the EITC or the child tax credit. The option would change the definition of a valid Social Security number for the EITC and extend that requirement to the child tax credit. For both credits, taxpayers, spouses, and qualifying children would be required to have Social Security numbers issued to U.S. citizens and noncitizens authorized to work in the United States. If enacted, the option would raise $37 billion from 2017 through 2026, the staff of the Joint Committee on Taxation estimates.

Under current law, the IRS can use a procedure known as "mathematical and clerical error" authority (often referred to simply as math error authority) to deny the EITC when neither the taxpayer nor qualifying children have valid Social Security numbers. With math error authority, the IRS can prevent the credit from being paid to the taxpayer without initiating the audit process. This option would extend that authority to the child tax credit when the taxpayer and children do not have valid Social Security numbers.

The main advantage of this option is that it would eliminate some of the disparity that currently exists in the credits' eligibility rules, making them less confusing and easier to administer. Under the option, the requirements related to the possession of a valid Social Security number would be the same for both credits: Only taxpayers (and their children) who are authorized to work in the United States—U.S. citizens, lawful permanent residents, or people in the United States on temporary work visas—would be eligible for the EITC and child tax credit. The IRS would be able to verify those requirements using the data it already receives from SSA and immediately matches to tax returns, allowing the agency to prevent payment of the credits to ineligible noncitizens.

A disadvantage of the option is the additional burden it would impose on some individuals. Many noncitizens initially obtained Social Security numbers to receive federal benefits at a time when they were not authorized to work in the United States. If they subsequently became permanent residents or U.S. citizens, they may not have notified SSA of the change in their status. Under this option, those individuals would have to take the additional step of updating their work authorization status with SSA to receive the EITC or child tax credit. Those actions would also increase SSA's workload. Many immigrants, however, already have an incentive to inform SSA of changes in their immigration status, so that their new employers can use E-Verify (a system administered by the Department of Homeland Security) to determine whether they are authorized to work in the United States.

The option could be modified in several ways that would either limit or extend its application. As specified, the option would prevent some noncitizens with permanent work authorization from receiving the child tax credit and the EITC because other members of their family are not lawful permanent residents or do not have visas allowing them to work in the United States. For example, one parent may be a lawful permanent resident, but his or her spouse is not authorized to work in the United States. An alternative approach would allow the credits to be paid if only one spouse provides a valid Social Security number. Another effect of the option is that it would allow noncitizens who were issued Social Security numbers when they had temporary work visas to continue receiving the credits when those visas expired. The option could be modified to limit eligibility for the credits to U.S. citizens and lawful permanent residents. However, that restriction would be difficult to administer because Social Security records, which the IRS currently relies upon to verify the identity of taxpayers and which could also be used to determine work status, do not distinguish between noncitizens with temporary work visas and lawful permanent residents.