You may have claimed the Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), or American Opportunity Tax Credit (AOTC) in the last few years. However, the IRS has been having serious issues with them. These three credits, plus the EIC, result in many “improper payments,” where almost a quarter of people claiming the credit aren’t actually qualified to receive them.
The EIC is a large tax credit, costing $66 billion in 2015. Assuming that a fourth of that is being paid to people ineligible for it, that’s as much as $16.5 billion dollars in waste and fraud. Although the CTC, ACTC, and AOTC are generally not as large, they’re not even included in this calculation, so the real cost is likely higher than that.
The main effort by the IRS to cut down on these improper payments means work for people filing their taxes, unfortunately. If you’re claiming the CTC or ACTC, first you may be asked to verify the social security numbers of your dependents. Second, you may be asked how long your children lived with you during 2015, or whether they lived with an ex-spouse, relative or guardian.
For the AOTC (which is a higher education tax credit of up to $2,500 for you and your dependent children) you’ll need a Form 1098-T from the university or college and you’ll also need the receipts from the payments that you made.
Be aware of these additional requirements for these tax credits if you’re filing for them during this tax season. Also beware: if you don’t comply with the new requirements, or don’t answer the additional questions that the IRS has for you, there’s a possible fine of up to $510 per return to the tax preparer!