Administrative Burdens, Transitions to Adulthood, and the EITC in Multigenerational Low-Income Households

Background and Purpose:

A burgeoning line of research has uncovered various forms of administrative burdens that individuals experience in navigating various public programs. Yet, there has been limited attention on the administrative burdens that low-income individuals may encounter as they navigate the U.S. tax code such as filing tax returns and subsequent receipt of tax refunds. This oversight is likely related to scholars conceptualizing tax filing as a relatively seamless process in which filers move through the tax system assisted by professional preparers who navigate tax laws resulting in low administrative burdens in learning and compliance costs.

Yet, nontrivial EITC error rates suggests potentially high learning and compliance costs. Moreover, EITC age requirements of dependent children transitioning to adulthood are complex. Young adults (19-24 years) who are full-time students may be claimed as a dependent for the EITC. Therefore, low-income households with a young college-enrolled adult may receive the EITC if the filer has knowledge of specific EITC rules, taxes are correctly prepared, and/or engages a knowledgeable tax preparer.

In this paper, we explore how the complex nature of EITC transition to adulthood rules and interaction with the IRS and professional tax preparers creates unique learning, compliance, and psychological costs for some EITC claimants with young adult dependents.

Methods:

Our paper draws from in-depth interviews with thirty tax filers in Chicago who received the EITC. Elements of grounded theory methodology were deployed, and two rounds of interviews were completed (before and after tax filing) to explore downstream experiences with EITC provisions and administrative burdens. Interviews were audio recorded, professionally transcribed, and uploaded to MAXQDA software for analysis. Inductive and deductive coding and analysis methods were used to understand the interviewees’ experience of various administrative burdens in claiming and receiving the EITC.

Results:

Analyses demonstrate EITC claimants have diverse knowledge of their eligibility to claim their young adult children. Many respondents assumed eligibility was based on age and/or the extent of financial support they provided to their young adult child. Interviews suggest age transitions for the Child Tax Credit and EITC may present challenges to understanding one’s eligibility to claim an adult child. Additionally, tax filers who have children and grandchildren living with them may lack knowledge of their eligibility to claim their grandchild. Among those who claim a young adult for the EITC, but were audited, we describe a difficult, frustrating, and “scary” terrain that can result in economic hardship, and without the proper guidance non-receipt of the credit. Lastly, regardless of parents’ eligibility, many did not want to claim their child (even if they should) and instead wanted their child to “claim themselves” in order to cultivate their child’s “independence” and “autonomy”.

Conclusions and Implications:

Results shed light on how increasing EITC participation for households with young adult children may require various strategies and interventions. Targeted awareness campaigns could increase knowledge of eligibility of multi-generational households and households with young adult children. Low-income taxpayers who experience an audit or tax debt may need additional assistance to access their credit.