Precertification Rule in Trump Spending Plan Threatens Access to Earned‑Income Credits
U.S.
Pre‑Approval Mandate Would Shift Compliance Burden to Taxpayers
Tucked inside the House version of the “One Big Beautiful Bill Act” is a clause that would require low‑income filers to pre‑certify every qualifying child before claiming the Earned Income Tax Credit beginning with the 2028 filing season. Under current law, households report children on Schedule EIC and receive the refundable benefit when they file. The proposed rule would force parents to secure IRS confirmation months in advance, then attach proof of that approval to the return.
Supporters frame the mandate as an antidote to duplicate or erroneous claims, citing Treasury Inspector General data showing overpayments of roughly $18 billion a year. Critics counter that compliance will become a logistical maze for families lacking paid preparers. Urban‑Brookings Tax Policy Center senior fellow Janet Holtzblatt predicts a tidal wave of documentation—school records, medical bills, lease agreements—landing at IRS campuses already strained by staff attrition. “You’re going to flood the IRS with all these documents,” she said, noting that residency and relationship tests are the most common stumbling blocks for EITC eligibility.
Administrative capacity is another flashpoint. Congressional appropriations trimmed IRS customer‑service funding by 11 percent in fiscal 2024, delaying call‑center response times and identity‑theft casework. Agency officials privately warn that adding a nationwide precertification workflow—potentially covering 23 million households—would require new staffing, IT upgrades, and outreach budgets that are not yet funded.
Historical Trials Flag Lower Uptake and Weak ROI
The concept is not new. During the George W. Bush administration, the IRS piloted a similar pre‑approval process in seven states. An internal evaluation found that eligible participation rates dropped between 12 and 19 percent, driven largely by confusion over paperwork deadlines and skepticism about sharing sensitive family data. Audits of recertified filers showed no statistically significant reduction in error relative to traditional post‑filing enforcement, leading Treasury officials in 2004 to shelve the idea.
Critiques resurfaced last month from the Tax Law Center at NYU. Senior fellow Greg Leiserson cited earlier cost‑benefit analyses showing that every additional dollar of compliance spending yielded only $0.35 in net savings once lost credits to eligible families were factored in. The current House language, he argued, mirrors that abandoned approach but on a national scale, multiplying both taxpayer burden and administrative expense.
Proponents in the House Ways and Means Committee respond that error rates have persisted despite two decades of incremental fixes. They point to TIGTA reports indicating that nearly one‑fourth of claims still contain mistakes—often unintentional—that may invite audits later. Committee aides say precertification moves verification “upstream” where mismatches can be corrected without issuing refunds that later require collection.
Income Hit Magnified by Refund Delays and Audit Exposure
The EITC remains the largest anti‑poverty component of the tax code, lifting an estimated 5.6 million people above the poverty line in 2022. Its refundable design allows families with no federal tax liability to receive up to $8,046 in cash support if they have three or more qualifying children and meet income thresholds below $68,675 (married filing jointly, 2025 levels). The Treasury‑BLS Household Income Survey credits the program with offsetting wage stagnation for the bottom quintile.
Economists caution that any delay in refunds can tip households into short‑term borrowing. Research by the JPMorgan Chase Institute shows that EITC payments coincide with peaks in debt repayment and utility catch‑ups each February. If precertification bottlenecks shift refund timing into late spring, low‑income families could resort to high‑interest payday loans or miss rent.
Audit patterns compound the stress. Though overall IRS examination rates fell to 0.2 percent last year, EITC filers faced audit odds 5.5 times higher than non‑credit claimants, largely through automated correspondence audits triggered by data mismatches. Policy advocates fear that precertification documents, if mishandled, could generate additional error flags and expand audit exposure rather than shrink it.
Holtzblatt warns of a regressive income effect. Modeling prepared for the Tax Policy Center suggests that forgone credits and interest costs on deferred refunds could shave $1,000 to $1,500 on average from annual resources in the lowest decile—mirroring estimates Yellen cited for tariff‑induced income hits. Families headed by single mothers, who comprise 33 percent of EITC recipients, would bear a disproportionate share.
Legislative Fault Lines and Implementation Unknowns
Nine Senate Democrats, led by Finance Committee member Maggie Hassan, pressed Majority Leader John Thune to strike the provision in a letter last week, arguing that it “further complicates the EITC’s existing challenges.” Senate Republicans remain divided. Fiscal hawks support the measure as an anti‑fraud safeguard, while moderates from states with high rural poverty rates worry about voter backlash if legitimate refunds shrink.
The Joint Committee on Taxation left the precertification clause out of its preliminary revenue estimates, citing insufficient detail on uptake. IRS leadership is likewise in a holding pattern; Commissioner Danny Werfel has told appropriators that implementing a child pre‑approval registry would require “significant multiyear funding” and an overhaul of the agency’s legacy Individual Master File.
Implementation questions abound. The House draft instructs the Treasury Secretary to design a secure online portal but offers no standards for documentation or timelines. Advocacy groups say many low‑income taxpayers lack broadband or smartphone access, necessitating paper forms that slow processing. Attorneys for the Center on Budget and Policy Priorities also warn that survivors of domestic violence could be endangered if estranged partners must co‑sign child residency affidavits.
Industry stakeholders lean ambivalent. Large tax‑prep chains such as H&R Block could see increased demand for assistance, but executives worry about reputational harm if clients’ refunds are delayed. Payroll‑software vendors anticipate programming complexity similar to the rollout of Form 1095‑C under the Affordable Care Act.
Fed Chair Jerome Powell offered no view on the provision but told reporters that any policy driving up household uncertainty “tends to weigh on discretionary spending,” a factor the Federal Open Market Committee monitors closely. Consumer‑finance analysts at Morgan Stanley have begun factoring a possible $10–12 billion drag on first‑quarter 2028 retail sales into forecasts if precertification becomes law and lowers aggregate refunds.
Negotiations in the Senate are expected to intensify ahead of the August recess. Should the chamber strip the language, conference talks will decide its fate later this year. In the interim, social‑service agencies are advising clients to maintain meticulous childcare and residency records, anticipating that some form of additional documentation may soon become a prerequisite for accessing the country’s largest cash‑transfer program.