IRS paid at least $13B in improper tax credits

The Internal Revenue Service paid more than $13 billion in tax credits last year to people who may not have qualified, a government investigator said Tuesday.

The Earned Income Tax Credits were supposed to go to low-income working families.

The agency's inspector general issued a report Tuesday saying the improper payments were between $13.3 billion and $15.6 billion. That's about a quarter of all EITC payments.

"The IRS can and must do more to protect taxpayer dollars from waste, fraud and abuse," said J. Russell George, the Treasury inspector general for tax administration.

The IRS said it is aggressively fighting tax fraud, and is improving its efforts to police EITC payments. The agency said it has stopped nearly 15 million suspicious returns since 2011, blocking more than $50 billion in fraudulent refunds.

"The IRS remains deeply concerned about the level of improper payments, and a major review currently underway is exploring a wide range of options to distinguish valid claims from excessive ones," the IRS statement said.

The Earned Income Tax Credit is one of the nation's largest anti-poverty programs. In 2011, more than 27 million families received nearly $62 billion in credits.

The credit is attractive because, if it is larger than your total income tax bill, the IRS will pay you the difference. This is especially helpful to low-income families because many pay little or no federal income tax.

But it also makes the credit more susceptible to fraud.

Using IRS statistics, the inspector general's report provided an estimated range of improper EITC payments from 2003 through 2013. The report says the IRS paid out at least $124.1 billion in improper payments during the period, and perhaps as much as $148.2 billion.

Families earn the credits by working and earning money, though there are income limits. The size of the credit depends on your income and the number of children you have.

This year, a married couple with three or more children can earn up to $52,427 and still qualify for the credit. A married couple with two children can earn up to $49,186 and still qualify, according to the IRS.

The maximum credit this year is $6,143 for families with three or more children. The maximum credit for families with two children is $5,460.