Removing EITC and Child Tax Credits for DACA/DAPA recipients and Non‐​Citizens

President Obama’s executive actions on immigration, known as the Deferred Action for Parents of Americans and Lawful Permanent Residents (DAPA) and the Deferred Action for Childhood Arrivals (DACA), have allowed those beneficiaries to retroactively receive Earned Income Tax Credits (EITC) and Child Tax Credits (CTC).


The DACA and DAPA programs grant recipients temporary work permits during the period of their deferred action. Under current legislation, CTC eligibility is determined through either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). Since many unauthorized immigrants are already issued ITINs, eligibility for the CTC is not much affected by DACA and DAPA.


EITC eligibility status is another story altogether, as currently only those who file taxes with a valid SSN are eligible to receive the benefits. DACA and DAPA will allow those recipients to apply for an SSN, thereby making them eligible for EITC benefits. Another IRS rule allows those recipients to retroactively claim EITC benefits for previous years in which they were not in the country legally. Under current law, taxes can be filed retroactively for up to three years by using the 1040X Amended Tax Return Form. Because DACA and DAPA recipients are eligible for SSNs, they are able to file amended tax returns, making many eligible for EITC benefits in previous years.


The EITC is known as a refundable tax credit, meaning that low‐​income families can receive a tax “refund” that is larger than their original tax liability. The program has become notorious for fraudulent and improper payments, yet the IRS has not enacted systematic reforms. According to a report by the Treasury Inspector General, the IRS paid out $63 billion in EITC payments in 2013 alone – $15 billion of which were given to people ineligible to receive EITC benefits. Of that $63 billion, only $8 billion were actual tax cuts and $55 billion were payments.


Non‐​citizens should be ineligible for means tested welfare benefits, the EITC, and CTC. Walling off welfare benefits is the best option after scaling the benefits back or removing them for everybody. Here is our previous work on how to build a wall around the welfare state. Since we only briefly consider the EITC in my original Cato policy analysis on how to wall off welfare benefits to non‐​citizens, these are the specific laws that would need to be amended to correct this.


Reforming Section 32(c)(1)(E) of the Internal Revenue Code of 1986 delineates the eligibility for EITC benefits. The language in subsection (1) determines eligibility. Changing the statute there could eliminate the ability for newly legalized immigrant workers to retroactively file for EITC benefits. This section could also be amended to deny the EITC to non‐​citizens broadly, but that is more complex as SSNs are granted to some non‐​citizens. A citizenship requirement for EITC would still decrease the outlays. 


CTC should also be denied to those who had their deportations deferred. CTC eligibility requirements are included in Section 24 of the Internal Revenue Code of 1986. Denying CTC benefits for previous years when the tax filer was ineligible for such benefits was actually proposed in Congress last year – here is the text of that bill. If possible, CTC benefits should be reserved for citizens only (if we can’t get rid of them altogether).


Immigration is a huge economic net‐​positive for the United States and fiscally neutral in the long run. Poor immigrants generally underuse means‐​tested welfare compared to poor Americans. Immigrants broadly subsidize the entitlement programs. Regardless, tax credits should not be retroactively available to immigrants who have had their deportations deferred nor should non‐​citizens have access at all.


Fiscal conservatives can use immigration as an argument in favor of restricting welfare and EITC benefits. That would be a far more effective and conservative use of their time than using the welfare state as an argument against liberalized immigration.