Wal-Mart and the EITC

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit that was first offered to taxpayers back in 1975 to help prevent low income families from slipping into poverty.  EITC can mean tax relief (lower taxes) for some and a tax refund (cash in pocket) for others.  When EITC exceeds the amount of tax owed, it results in a tax refund for those who qualify.  As you can imagine, the EITC is one of the tax provisions that is most susceptible to fraud.

Most people who file early expect a tax refund, often due to EITC claims.  Apparently Wal-Mart stores possess a key indicator of how many EITC claims are being made each tax season.  So far this year Walmart’s numbers are low.  Wal-Mart stores have cashed a mere $1.7 billion in refund checks so far this year compared to $3 billion this time last year.

The reason why Wal-Mart’s numbers are off is actually two-fold.  First, the start of tax season was delayed this year, and a whole week’s worth of tax refund checks could add up to at least another $1 billion or so.  Second, and more importantly, the IRS is reviewing as many EITC claims as possible this year to try to identify fraudulent claims.  However, according to the IRS no more than 5 percent of EITC claims are being delayed.

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