The IRS audits a disproportionate (but still small) share of tax returns that include EITC claims. The agency has found that average discrepancies between taxes owed and taxes paid are smaller on EITC returns than on all returns.
IRS Audits of Earned Income Tax Credit Returns
In FY 2022, the IRS audited fewer than 750 thousand of the almost 263 million returns filed, less than 1 percent of the total. Returns claiming an earned income tax credit (EITC) were audited at a rate more than four times that of all individual income tax returns: 0.9 percent compared with 0.2 percent. Almost all EITC audits (99 percent) were correspondence audits, meaning the tax filer was notified and could respond by mail.
The IRS selects which returns to audit based in part on a statistical formula that identifies returns most likely to be at risk of having an error (Guyton et al. 2018). For all individual income tax returns audited in FY 2022, the IRS recommended no change on about 4 percent of all returns and on 4 percent of returns with an EITC. The average amount of money the IRS attempted to collect on all audited individual income tax returns was $20,060. The average amount on audited returns with an EITC was $5,031.
Recent analysis demonstrates that correspondence audits decrease the likelihood that a person will claim an EITC the year following the audit by over 30 percentage points. That effect persists to some degree for multiple years (Guyton et al. 2018).
Although selecting cases to be audited is done without knowing a person’s race (the IRS does not collect information on the race of the taxpayer), recent analysis showed that Black taxpayers were between 2.9 and 4.7 times more likely to be audited than non-Black taxpayers (Elzayn et al. 2023). They find the main source of disparity is the differing audit rates among taxpayers claiming the EITC. If audit selection focused more on maximizing tax due rather than minimizing the no change rate and the number of taxpayers erroneously claiming net refunds instead of underreporting net taxes due, this disparity would narrow.
Updated January 2024
Elzayn, Hadi, Evelyn Smith, Thomas Hertz, Arun Ramesh, Robin Risher, Daneil E. Ho, and Jacot Goldin. 2023. “Measuring and Mitigating Racial Disparities in Tax Audits.” Stanford Institute for Economic Policy Research (SIEPR), Working Paper. Stanford, CA.
Guyton, John, Kara Leibel, Dayanand S. Manoli, Ankur Patel, Mark Payne, and Brenda Schafer. 2018. “Tax Enforcement and Tax Policy: Evidence on Taxpayer Responses to EITC Correspondence Audits.” NBER Working Paper No. 24465. Cambridge, MA: National Bureau of Economic Research.