The House-passed One Big Beautiful Bill Act (OBBBA) resurrects “precertification” for the Earned Income Tax Credit (EITC), a practice tested and rejected over 20 years ago. It would require people to provide third-party documentation to the IRS that proves EITC eligibility, either before claiming it or upon filing their Form 1040. 

Precertification may sound like a good idea. Generally, compliance improves when the IRS can compare data from independent sources to taxpayers’ claims. Just the knowledge that the IRS has data from another source—such as W-2s from employers—is sometimes sufficient to sway taxpayers to report their income accurately. 

Yet, a pilot study during the George W. Bush administration found precertification to be far less efficient in stopping erroneous refunds than the IRS’s practice of freezing refunds and contacting people after they have filed a tax return with a suspicious-looking credit. Moreover, precertification imposed substantial burdens on eligible claimants, the IRS, and the third parties asked to provide the proof of eligibility.

The burdens would be worse under OBBBA’s precertification provision. It would cast a much wider net than the pilot, with millions more people required to prove their eligibility. And given the recent rollbacks in funding and staffing, the agency would most likely lack the resources to thoroughly review much of the submitted proof. 

The likely result: Many eligible taxpayers would have to wait longer for their EITC, causing financial hardships in the meantime—if they get it at all.

Precertification has already failed—here’s what the IRS learned

In 2003, a joint IRS-Treasury task force made five recommendations to improve the administration of the EITC. The most notable was a three-year pilot program to test the effectiveness of having claimants prove their child’s eligibility before filing their return. (Full disclosure: As one of the EITC experts at Treasury, I served on the task force.)

The pilot focused on people at high risk of claiming the EITC when they were not eligible. People were identified as high risk based on computer algorithms that utilized past data from the Social Security Administration and the Department of Health and Human Services. None of those data sets, however, contained complete information to accurately determine the taxpayer’s current eligibility for the EITC.

As expected, precertification deterred many ineligible people—over 40 percent of the sample in the pilot’s final year—from applying or enabled the IRS to stop payments to ineligible claimants. 

But even with the study’s sample restricted to likely ineligible taxpayers, the IRS found that nearly 30 percent of the sample were eligible for the credit after they needlessly spent time and effort searching for documents proving their child lived with them for half the year. About 20 percent of claimants had to take time off from work to obtain documents, and the number of hours to prepare a return more than doubled on average. 

Other individuals and organizations also bore heavy costs of precertification. In focus groups of third parties, some school administrators and health-care providers reported providing documents for at least 20 children in their schools or practices. The IRS incurred additional costs for processing and reviewing the documents as well as for responding to taxpayers’ questions.

At the conclusion of the pilot, the results were compared to the IRS’s existing practice of asking for documentation only if EITC claims on that year’s tax returns were flagged as suspicious based on a combination of current and prior-year tax returns, the most recent data provided directly from other agencies, and tested algorithms. 

The IRS determined that its current methods stopped more erroneous payments relative to the agency’s administrative costs. Consequently, the IRS rejected precertification. 

OBBBA would expand a failed test to millions more taxpayers

While the pilot required documentation of people at risk of claiming a child who did not live with them, the OBBBA would require all EITC applicants to seek certification in advance that the child met all the credit’s eligibility requirements. 

Had OBBBA precertification been in place in 2022, 17 million families would have had to supply documents for a total of 29 million children. In many cases, taxpayers might have had to provide more than one document to prove their child met all EITC criteria.

Those numbers would be lower if precertification stopped some people from bothering to claim the credit. That would be a positive outcome if fewer ineligible people claim the credit. But as the precertification pilot demonstrated, some eligible people would also give up—perhaps because they couldn’t take time off from work, were unable to obtain documentation, or didn’t understand the instructions. 

And the hassles would not end there. Precertification would likely slow refunds. People wouldn’t receive the EITC without precertification, but the OBBBA provides no additional funding for the underfunded and overstretched IRS to process and review certifying documentation. 

EITC verification is vital, but precertification is not

The IRS should use third-party data to verify EITC claims (and for all other items reported on tax returns, to the extent possible). Certainly, the post-filing/pre-refund interventions developed in the 1990s could be improved—for example, by following up with claimants who do not respond at all to the IRS notices or refining the selection criteria. Given its history, precertification is not a superior alternative.

This year marks the 50th anniversary of the EITC. Research demonstrates the effectiveness of the EITC at reducing poverty, encouraging work, and improving health and educational outcomes for the children of recipients. It would not be a happy anniversary if the OBBBA’s precertification results in fewer eligible people receiving the credit on time or not at all.