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

Background

The earned income tax credit (EITC) and the child tax credit provide assistance to low- and moderate-income taxpayers. 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. (Whereas the EITC is fully refundable, the amount of the refundable portion of the child tax credit is capped.) The nonrefundable and refundable portions of the two tax credits totaled $119 billion in 2016. 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. All EITC claimants and their qualifying children must have a Social Security number. 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. That rule applies to both spouses, if claimants are married, and to claimants' qualifying children. As a result of that rule, many people who are not authorized to work in the United States (or whose children lack that authorization) are ineligible for the EITC.

However, some people can receive the EITC even though neither they nor their children possess a Social Security number that indicates they are authorized to work in the United States. Those individuals were issued Social Security numbers before 2003 because they needed them to obtain drivers' licenses or to open bank accounts. SSA no longer issues Social Security numbers for such purposes, but the agency did not rescind the numbers obtained before the ban. Because those Social Security numbers were provided to people who were not applying for federal benefits, the numbers are considered to be valid for purposes of receiving the EITC.

By contrast, noncitizens can claim the child tax credit as long as they have either Social Security numbers (including those issued to individuals for the sole purpose of receiving government benefits) or individual taxpayer identification numbers, which are issued by the Internal Revenue Service (IRS) to anyone who is required to file a tax return but cannot obtain a Social Security number. Their qualifying children, however, must have a Social Security number, and that number is considered valid only if it was issued by SSA solely to people authorized to work in the United States. After 2025, the requirements for identification numbers for qualifying children will revert to those in effect before 2018: The qualifying child must have a Social Security number (although there are no restrictions on the reason for its issuance) or an individual taxpayer identification number.

The IRS has statutory authority to deny claims for the EITC and, to some extent, the child tax credit if those claims do not include valid Social Security numbers. Under certain circumstances, the IRS can rely on simpler and less costly methods than audits to correct taxpayers' errors. In particular, the IRS is authorized to use "mathematical and clerical error" (or simply "math error") procedures to automatically deny the EITC when tax returns do not include valid Social Security numbers for the taxpayers and their children. Those procedures can also be used to deny the child tax credit if the child's Social Security number is invalid. Using math-error procedures prevents the credits from being paid to taxpayers and does not require the IRS to take further action, although taxpayers retain the right to dispute the IRS's decision.

The Congressional Budget Office projects the annual increases in the number of immigrants unauthorized to work in the United States to be relatively modest over the next decade. That projection reflects the effects of expected economic growth as well as the expected continuation of trends in immigration in recent years.

Option

Under this option, people who are not authorized to work in the United States would not be eligible for either the EITC or 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. The IRS would be authorized to deny the credits using math-error procedures when taxpayers and their children do not have those types of Social Security numbers.

Effects on the Budget

If enacted, the option would raise $24 billion from 2019 through 2028, the staff of the Joint Committee on Taxation estimates. The expiration of certain individual income tax provisions at the end of 2025 affects the pattern of the estimates. Through 2026, revenues are projected to be roughly stable. Beginning in 2027, though, they would rise somewhat. That increase would occur because of the expiration of the provision requiring child tax credit claimants' qualifying children who are not citizens to have Social Security numbers that were issued only to those authorized to work. To some extent, that effect would be offset by the expiration of the temporary expansion of the child tax credit. (Neither effect would be observed until 2027, when taxpayers would file their 2026 tax return and claim the credits.)

The largest sources of uncertainty surrounding the estimate are CBO's projections of the flows of unauthorized immigrants to the United States. Another source of uncertainty concerns the number of unauthorized workers claiming the credits. If, for example, fewer unauthorized immigrants than projected claimed the credits, the option would raise less revenue.

Other Effects

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 the child tax credit. The IRS would be able to verify those requirements using 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 the 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 because doing so allows their employers to confirm that they are authorized to work in the United States through E-Verify (a system administered by the Department of Homeland Security).

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 EITC and the child tax credit 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, the IRS would deny the credits even if one parent was a lawful permanent resident if his or her spouse was not authorized to work in the United States. An alternative approach would be to allow the credits to be paid if only one spouse provides a valid Social Security number, but that approach would raise less revenue than the option would. 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, which would generate a greater increase in revenues. 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.