Earned Income Credit is a euphemistic description of a government handout to a tax payer, single or married, who claims to have one or more qualified children and whose adjusted earned income (for tax year 2005) is less than:
- $31,030 with one qualifying child ($33,030 if married filing jointly)
- $35,263 with more than one qualifying child ($37,263 if married filing jointly)
Earned Income Credit payments range approximately from $1,000 to $5,000 depending on earnings declared and the number of children claimed. The small amount of tax that a tax payer who receives Earned Income Credit is owed is deducted from the Earned Income Credit. For example, if the tax payer owes $500 in tax but whose Earned Income Credit is $2,500, the tax payer receives a net amount from the IRS of $2,000.
The maximum amount of Earned Income Credit is determined by an income peak. If a tax payer has zero earnings, he cannot receive Earned Income Credit -- or if a tax payer earns too much, he cannot receive Earned Income Credit. Thus, there is an amount from zero to $33,030 (if married filing jointly) that will yield the highest amount of Earned Income Credit. The IRS is known to be suspicious of those NOT claiming income, but the IRS almost never gets suspicious of a tax payer who claims income he didn't earn. Ironically, a tax payer who earned zero, can claim to have earned, say, $30,000 in tips or other income and be eligible for an Earned Income Credit.
Tax preparers for illegal aliens are well aware of all the tricks. If they are investigated regarding questionable tax returns, they cannot in most cases be held responsible for fraudulent tax returns, as they use the excuse that they cannot be held responsible for false information given to them by the tax payer.
The filing status can be any status except married filing separately (filer can be a single parent).
The tax payer (and spouse if filing jointly) must have a valid social security number. A tax payer can have a social security number that does not belong to that tax payer, but nevertheless is a valid number belonging to another tax payer. The IRS almost never does verification of social security numbers and/or audits of tax payers claiming Earned Income Credit -- unless a rarely called for audit is done. In general, the IRS uses the honor system in taking the tax payer's word on any claims made.
A qualified child (or children) must also have valid social security numbers and must live with the parent/s.
In those rare cases when an audit is called for where it is found that the Social Security number/s does not belong to the tax payer claiming Earned Income Credit, the IRS informs the tax payer that he is not eligible for the Earned Income Credit without any punitive action. In a case where the IRS discovers that a tax payer was paid the Earned Income Credit in previous year/s and was not qualified to do so, the tax payer must return the money to the IRS.
Many illegal aliens, especially those who share residences with others, move several times a year from one address to another or even move to another state. So when a discrepancy is discovered by the IRS, the illegal alien tax payer who has already received his Earned Income Credit or other refund which must be returned is nowhere to be found. The alien can in future tax filings use another name and another Social Security number.
Given that there is virtually no risk of being discovered for false Earned Income Credit claims, there are probably a significant number of illegal alien tax payers receiving Earned Income Credit who are not entitled to do so.