Policy Recommendations

Even fairly confident American taxpayers are confused by complex and arbitrary federal tax rules. For those in poverty, many experiencing chronic or toxic stress, it’s even more difficult to parse out. The current federal tax code is incredibly complicated, but it doesn’t have to be that way. With the will, Congress and the IRS can simplify the tax code and eligibility rules for important tax credits like the CTC and EITC. To ensure struggling families can actually access those tax credits, it’s also important to learn from experiences with the non-filer tool, GetYourRefund.org, and GetCTC.org to improve functionality and access for families in a variety of different circumstances.

Many parents and caregivers are confused by the different eligibility requirements for the EITC and CTC, and the various earnings thresholds for the credits make family budgeting difficult. The option to create a free, direct e-file IRS tool could be an important step to improving access to needed tax credits by low- and middle-income families, but only if it is well-designed and easy to use for struggling families. However, there is even more the federal government and states can do to take the pain points out of the process. Research suggests that federal and state governments already collect the information they need to automatically process returns for 44 to 48 percent of Americans accurately.¹ Implementing some type of autofiled return process similar to those found in other developed nations would greatly reduce the pain points in the filing process.

Simplifying the credits would improve the process even more. The Taxpayer Advocate² has recommended separating the EITC into a worker benefit and a child benefit, and conservative³ and progressive⁴ policymakers and advocates have put forth proposals to merge the child benefit of the EITC with the CTC to create a Unified Child Benefit (UCB). Work and earnings requirements continue to be a point of disagreement between Democrats and Republicans, but there is a possible compromise that would center low-wage workers and retired or disabled caregivers to ensure low-income families are supported and know exactly how much they will receive.

We have organized these recommendations for simplified credits, improved e-file options, and other accessibility measures according to a set of priorities that would make filing taxes and claiming the appropriate credits easier for everyone.

Make it make sense.

• Review language on letter templates, e-file, and paper returns to ensure language is at a 6th grade reading level for the millions of Americans with limited literacy.
• Create translated documents or optimize online forms for multilingual text-to-speech readers in the top three languages spoken by ITIN filers.
• In the new direct e-file system and other IRS communications, use a simple step-by-step process to tell people what credits they are eligible for and give people estimates of their credits and refunds.
• Make rejection codes clearer when people are bounced out of online e-file systems or paper application processes so they can resolve the issue quickly.

Make it easy, do it once.

• Create a simple online calculator for gig and contingent workers that consolidates 1099 amounts and any additional cash payments into a total annual amount.
• Create intergovernmental data-sharing agreements to automatically add other income sources reported to the government in prepopulated tax forms. Create a paper option for low-income people, the elderly, or those without computer access. Individuals can then confirm, correct, or add other sources.
• Create a free, direct e-file solution that includes an option for state taxes to streamline the process. Test with several states.
• For people receiving only W-2 income, prepopulate income information in the direct e-file tool using employer W-2 submissions. Create a paper option for those without computer access. Individuals can then confirm or correct their returns.
• Ensure e-file automatically claims EITC or CTC at the correct amount if income levels and dependents entered indicate that someone is eligible.
• Prepopulate returns in direct e-file with past Adjusted Gross Income⁵ (if applicable), dependents, EITC or CTC eligibility, and filing status.
• Alert people when their tax return is processed and include income, taxes paid, credit amounts, and refund amount. Use the direct e-file interface to explain clearly what was paid during the year, what people should have paid, and what is refunded and why.

Ensure the Americans struggling the most get help.

• Work with municipalities, state agencies, the U.S. Postal Service, and local nonprofits to create a process to allow people struggling without permanent addresses to receive any refunds in electronic cash apps or prepaid debit cards securely.
• Ensure a simple paper process is available for low-income, housing insecure, or elderly people who don’t have computers or smartphones. Include the option for pre-populating income information for people with no deductions and simple income that is already reported to the government.
• Add capacity to IRS phone help lines to ensure people with government phones or no computer are able to get through and ask questions quickly. Triage with VITA, municipalities, counties, and other nonprofits for more in-depth help such as getting lost identity paperwork.
• Create a live chat on the IRS website for simple, quick questions. Make it easy to find from the homepage.
• Refine and reintroduce the IRS non-filer tool for people earning very little money, providing additional options for identification verification to address issues with the original tool.

Make it easier to follow the rules.

• Allow municipal and state social service agencies, vital records offices, drivers license offices, and post offices to confirm identities in person and confirm directly to the IRS.
• Allow people getting lost or stolen birth certificates replaced to certify their identity once and have the vital records government agency confirm that with the IRS directly.
• Allow municipal and state social service agencies and post offices to verify immigrant documentation in person and confirm that documentation to the IRS for ITIN number applications.
• Fund and train a larger network of local nonprofit organizations to work with immigrants and refugees to explain the process and help them apply for ITINs.
• Provide funding and training to municipal, county, and state social service offices to offer help with resolving documentation and paperwork issues.

Give the CTC to the people caring for the children.

• Make the definition of a dependent child consistent across government departments, including those administering SNAP, WIC, and other government benefits.
• Make the CTC and EITC available to low-income grandparents and family members who are the primary caregivers for children, even if they are retired or on disability, by allowing additional forms of income to count for eligibility. Allowing these forms of income to count towards calculating their CTC and/or EITC will ensure that children raised by grandparents or caregivers with disabilities are not penalized simply because their caregiver cannot work.
• Discontinue the residency and support requirements to allow families to decide who will claim a child.
• Provide grandparents and family members who are the primary caregivers of children a simple way to prove it, and offer a clear process to allow them to split credits with parents if they wish, similar to the process for divorced parents.

Establish minimum standards and proper regulation of return preparers.

• Paid return preparers play a crucial role in tax administration, yet there are no required minimum standards or regulation of preparers. The lack of minimum standards and regulations harms taxpayers when their tax returns are prepared by incompetent or unscrupulous preparers and costs the government billions annually.⁶ New legislation should allow the IRS to establish minimum standards and regulation of paid return preparers.

Don’t go after the poorest people.

• Low-income families should be exempt from penalties, late fees, and interest in the case of minor errors on their tax returns. This may be one way to address fears and concerns about "getting in trouble."
• Create a "safe-harbor" for low-income families. This could be similar to the safe-harbor created under the enhanced CTC—that if someone overestimates how much EITC or CTC they are eligible for (e.g., they forgot to report certain income), then they only have to pay back a certain proportion of it or none of it on the first occasion.
• Create a larger “safe-harbor” provision to reduce reporting requirements for low-income families earning small amounts of money at side or gig jobs.

Streamline the tax credits that benefit low-income families the most.

• Create a straight-forward Unified Child Benefit (UCB) by merging the child benefit of the EITC with the CTC and making the EITC a worker benefit to clarify eligibility requirements and make the credits easier to understand and plan for. A compromise that could be palatable to both sides of the aisle would be setting the income threshold for the full UCB low enough (e.g., $6,000) and including all sources of income to ensure low-income families receive help and know exactly how much they will receive.