Each tax season, the Department of Revenue (DOR) conducts a pre-refund review of selected returns where the Earned Income Tax Credit (EITC) is claimed. The following questions and answers provide additional information about this process and its potential affect on you and your clients.
Why Does DOR Conduct a Pre-Refund Review?
DOR conducts a pre-refund review of EITC for several reasons:
- To educate EITC filers about the eligibility criteria for EITC.
- To attain DOR's goal of issuing EITC refunds as quickly and efficiently as possible while maintaining or improving voluntary compliance for the benefit of all taxpayers.
- To correct invalid or incorrect claims filed, ensuring that the correct amount of EITC is issued to all claimants. (For the 2006 tax year, there were approximately 228,000 EITC claims filed. Credits of more than $3 million were claimed incorrectly.)
How are Returns Selected for Review?
Based on more than 15 years of experience administering the EITC, DOR selects only those returns on which errors may be likely. The following errors occur most often:
- Improper qualifying children claimed - Children should only be claimed as qualifying children for EITC purposes if they meet qualifying criteria regarding relationship, age, and residency.
- Wisconsin EITC claimed by nonresidents or part-year residents of Wisconsin - Only full-year residents of Wisconsin are eligible to receive the Wisconsin EITC.
- Filing as single or head of household when married - If the taxpayer is married and does not qualify to file as head of household, they must file as married filing jointly or married filing separately. This results in a different adjusted gross income limit, above which the EITC is not available.
- Improper earned income claimed - To be eligible to claim the EITC, the taxpayer must have earned income. Only income properly categorized as earned income should be used in the EITC computation.
What information may be requested during a pre-refund review? Why Does DOR Need This Information?
- Children's birth certificates and social security cards: This information establishes the relationship of the child to the claimant and verifies the biological mother and/or biological father of the child. The social security card is required to determine that the child has a valid social security number and is authorized to work in the United States.
- Foster care placement papers: These documents are used to verify when the child was placed by an authorized agency, the dates the placement began and ended, and the amount of foster care payments received.
- Kinship care papers: This is necessary to show the dates a child lived with a related non-parent.
- School/daycare records: The residency test requires that the child actually live with the taxpayer. School/daycare records establish the dates the child was enrolled and the home address of the child while enrolled. If the child is over age 19, a school transcript showing the above information as well as the number of credits/classes the child completed during the tax year verifies residency.
- Lease/rental agreement, housing assistance agreement, and notarized landlord statement: These documents verify all of the residents of the household during the tax year. These documents also confirm the amount of rent paid during the tax year.
- Divorce decree or separation agreement: For cases where the physical placement and/or custody of the children may be shared between ex-spouses, these legal documents aid in substantiating the exact days the child(ren) lived with each parent.
The above list is not meant to be all-inclusive. Unique situations may require the reviewer to ask for other verification.
All of the information requested is necessary to complete the pre-refund review of the EITC claimed. Providing only part of the information results in additional delays in issuing a refund, as another request for the missing information will be made.
January 30, 2008