Tax Credit Often Goes to the Ineligible

As much as 40% of a special tax benefit for low-income families with children is being claimed by ineligible people, the Internal Revenue Service estimated Friday.

As part of its audit program, the IRS found that in 1985, $818 million of the total $2.1 billion earned-income credit went to those who were found to be ineligible. Credits totaling $6 billion are expected to be claimed this year by more than 10 million working families.

The credit was enacted in 1975 to reward low-income workers who hold a job rather than rely solely on welfare benefits. At that time, the credit was viewed as basically an offset against Social Security taxes.

For 1990, the credit is for 14% of the first $6,810 of wages and other earned income, a maximum benefit of $953. The credit drops as wages rise, and is eliminated once income reaches $20,264.