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The Finance Committee of the U.S. Senate has approved a plan to finance
increased child care funding under a reauthorized Temporary Assistance
for Needy Families (TANF) program by eliminating Earned Income Tax
Credit (EITC) eligibility for certain families that include immigrant
parents or children. The proposal, which the committee approved on Mar.
9, would disqualify many families from the EITC unless all members of
the family possess Social Security numbers (SSNs) that are valid for
employment.
At first blush, the proposal may seem like a
common-sense, technical fix. However, further analysis reveals that the
proposed change in law is substantive: it would harm many hard-working
immigrant families in which all of the members are lawfully present
under immigration statuses that permit employment (including some
families in which the income-earner is a U.S. citizen). Alternative
solutions are available to fix any problems in the administration of
EITC benefits to immigrants whose SSNs were issued for nonwork purposes.
current law
The Earned Income Tax Credit (EITC) is a critical
tax credit for low-income workers. The EITC provides tax relief for
low-wage workers and helps ensure that families that include a parent
who works full-time for the entire year in low-wage jobs do not live in
poverty. Taxpayers apply for the EITC by providing information about
themselves and, if applicable, their qualifying spouse and children.
The EITC is of particular importance to immigrant families: immigrant
workers disproportionately fill lower-wage jobs, and their families are
less likely to have access to income supports beyond the EITC due to
immigration status–based restrictions in many public benefits programs.
In 1996, under Section 451 of the Personal
Responsibility and Work Opportunity Reconciliation Act (PRWORA),
Congress changed the rules governing eligibility for the EITC, requiring
that adult taxpayers seeking the EITC and any qualifying spouse or
children included as part of the EITC application possess either (1) an
SSN valid for employment or (2) an SSN issued validly by the Social
Security Administration (SSA) for nonwork purposes, provided that the
immigrant’s status does not prohibit him or her from engaging in
employment. In either of these instances, the SSA issues the card only
to immigrants who are lawfully residing in the U.S. See 26 USC
§ 32(m), referencing 42 USC § 405(c)(2)(B)(i)(I-III). (Under earlier
Internal Revenue Service (IRS) guidelines and procedures, immigrants who
did not have an SSN were able to file a tax return and claim the EITC by
writing in the words “applied for” or “section 503(c)” in lieu of
providing an SSN. Beginning with the 1994 tax year, the IRS required
each taxpayer, spouse, dependent, and EITC-qualifying child to provide a
valid number, or be subject to delays and penalties. The practice
varied, however, depending on the particular IRS office processing the
claim. Under PRWORA in 1996, Congress deleted an EITC eligibility
category that had permitted nonwork SSNs for the sole purpose of meeting
a requirement of a federally funded benefit. Some undocumented persons
and immigrants with temporary statuses prohibiting employment had been
eligible under this now-eliminated category.)
Congress thereby made a clear distinction between
those persons whose immigration status permits employment
(such persons remained eligible under the PRWORA for the EITC) and those
whose immigration status prohibits employment (such
persons became ineligible under the PRWORA for the EITC).
This is different from the rule in the new
proposal, which distinguishes between people whose Social Security
card authorizes employment and those whose Social Security card
is not valid for employment.
examples of the impact of the new proposal
The new proposal would harm immigrants lawfully
present in the U.S. whose status permits them to be employed here but
who obtained an SSN for nonwork purposes. Consider, for example, an
immigrant family with two parents and two young children. All four
family members were granted entry into the U.S. for humanitarian reasons
as “public interest parolees.” The parents work and have regular Social
Security cards that are valid for employment. In order to meet the
requirements of a state-funded health program, the children must apply
for SSNs. Under SSA rules, the agency will not issue an SSN valid for
employment unless the applicant presents employment authorization from
the Dept of Homeland Security. The current application fee for
employment authorization is $175 per person. Since the children have no
need for a work permit, they each apply for a “nonwork” SSN. They are
issued a Social Security card marked, “Not valid for employment.” Were
the current proposal passed into law, the family could not qualify for
the EITC without spending $350 to obtain two employment authorization
cards that are otherwise unnecessary and useless to the children.
Similar inequities would fall upon a family that
includes one working parent and a spouse who is lawfully residing in the
U.S. but who has no need for a work-authorized SSN. For example,
suppose the spouse has a disability and is unable to work. Under
current law, the family may be eligible for the EITC if the immigrant
with disabilities has a nonwork SSN and an immigration status that does
not prohibit employment. The current proposal would disqualify the
disabled spouse and, because of this, the entire family would lose
access to the EITC.
Another large category of families losing EITC
eligibility would be those that include immigrants who originally
obtained their valid nonwork SSN before they were authorized to work.
Some of these families eventually would be able to obtain the EITC under
the new proposal, but only after the delays and expenses associated with
changing their records. Many others would not understand the reason for
the denial nor how to correct the problem and would therefore be
deterred from receiving the EITC benefit.
There is no principled policy reason for
establishing rules that will deter or deny these lawfully present
low-wage working families from receiving EITC benefits. The restriction
is particularly onerous because a single lawfully present immigrant
without a work-authorized SSN could disqualify an entire family from
obtaining the EITC, even if all other family members are U.S.
citizens.
treasury report recommends better coordination
In Sept. 2001, the Treasury inspector general
issued a report, titled “Letter Report: Substantial Earned Income Credit
is Paid to Non-Entitled Individuals Who Use Not Valid for Work Social
Security Numbers,” finding that the IRS lacked an effective process to
prevent EITC payments to the groups of immigrants that Congress had
targeted for exclusion under the 1996 changes: immigrants whose status
prohibited them from being employed in the U.S. and who were issued SSNs
for the sole purpose of meeting a requirement of a federally-funded
benefit. According to the report, the primary source of the problem is
that the IRS does not receive data from the SSA that enables the IRS to
distinguish effectively between different kinds of non–work-authorized
SSNs: nonwork SSNs issued under the pre-1996 law solely so the person
to whom they were issued could obtain federal benefits (ineligible for
the EITC), and nonwork SSNs issued to lawfully residing immigrants whose
status does not prevent them from being lawfully employed in the U.S. so
they could obtain state or local benefits (eligible for the EITC).
It is notable than in describing the legal
background of the rules, the Treasury inspector general did not once
suggest that the 1996 reform was incoherent, contradictory, or in need
of a statutory fix, technical or otherwise. Rather, the inspector
general issued a series of recommendations to the IRS aimed at fixing
the problem. The IRS disputed that the problem was as prevalent as
characterized by the inspector general and rejected a key
recommendation: to coordinate better with the SSA in order to obtain
needed information about nonwork SSNs.
It would be inappropriate to change the law in ways
that cause real hardship to low-income immigrant workers and their
families based on speculation about a problem that may be far less
prevalent than feared, and one for which there are alternative solutions
that could avoid harm. This is particularly important given the
underlying goal of EITC—to reward hard-working but modest-income
taxpayers by augmenting their family wages.
welfare reform savings on the backs of immigrants: take two
It is ironic that as Congress attempts to revisit
the welfare reforms of 1996, it again seeks to find savings by imposing
new restrictions on immigrant families. The bulk of savings under the
PRWORA came from cutting lawfully present immigrants from critical
safety-net programs. As the impact of these cuts became clear, most in
Congress came to regret them, and in subsequent years many of the cuts
were repealed. Now some are proposing once again to “rob Pedro to pay
Paul.” It is unacceptable to return to the 1996 law and further tighten
its restrictions on immigrant eligibility for the EITC, a proposal that
will deter or deny lawfully present, tax-paying immigrant families from
securing a critical work support.
A description of the proposal to eliminate EITC
eligibility for certain families that include immigrant parents or
children can be found on p. 89 of the Dept. of the Treasury’s “General
Explanations of the Administration’s Fiscal Year 2005 Revenue Proposals”
(Feb. 2004), available at
www.treas.gov/offices/tax-policy/library/bluebk04.pdf.
By
Jonathan Blazer, NILC public benefits policy attorney
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