Earned Income Credit: Claimants' Credit Participation and Income
Patterns, Tax Years 1990 Through 1994 (Letter Report, 05/16/97,
GAO/GGD-97-69).

Pursuant to a congressional request, GAO provided information on
taxpayers' participation in the Earned Income Credit (EIC), focusing on:
(1) EIC claimants' patterns of claiming the credit; (2) changes in their
income in the years following an EIC claim; and (3) their income and
filing status after leaving the EIC.

GAO noted that: (1) from tax year 1990 through tax year 1994, 27.3
million taxpayers claimed the EIC for families with children, at least
once; (2) they made a total of 69 million claims totaling $73 billion
(in 1996 dollars); (3) about two-thirds of these taxpayers claimed the
credit at least twice during the 5-year period, and about half claimed
it in 3 or more of the 5 years; (4) (5) most EIC claimants, on average,
took the credit at least one more time; (6) not only did most taxpayers
who claimed the EIC do so more than once, but many took the credit
several years in a row; (7) on average, about half of the claimants in a
year took the credit in each of the next 2 years; (8) Congress designed
the EIC, in part, as an incentive for low-income for low-income
taxpayers to find and keep jobs rather than relying on welfare; (9) most
EIC claimants continued to file a return over the 4 years following a
claim, 91 percent filed a return in the first year, and 82 percent did
so in the fourth year; (10) on average, in the first and fourth years
after a claim, respectively, 25 and 36 percent of claimants reported
higher income while 21 percent and 29 percent reported lower income or
did not file a return; (11) when GAO tracked taxpayers who at some point
stopped claiming the EIC, GAO found that most filed a return in the
first and second consecutive years of not claiming the credit the EIC,
almost equal proportions reported income within the EIC range and above
the EIC limit; (12) among taxpayers in their first year not claiming the
EIC, almost equal proportions reported income within the the EIC range
and above the EIC limit; (13) among taxpayers in a second consecutive
year not claiming the credit, the proportion of those reporting income
above the EIC limit increased; (14) about 40 percent of taxpayers who
filed a return in the first year that stopped claiming the EIC also
reported a change in filing status, predominantly from head of household
status to single or married filing jointly; (15) to qualify for the EIC
in tax year 1990, taxpayers needed to have at least one qualifying child
and reported income less than $23,750 (in 1994 dollars); (16) if this
maximum income limit would have applied in tax year 1994, about 2
percent of 1994 claimants of the EIC for families with children would
not have been able to claim the credit because of income above the
eligibility threshold; and (17) these taxpayers claimed about $48 milli*

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-97-69
     TITLE:  Earned Income Credit: Claimants' Credit Participation and 
             Income Patterns, Tax Years 1990 Through 1994
      DATE:  05/16/97
   SUBJECT:  Income statistics
             Income taxes
             Tax credit
             Tax refunds
             Taxpayers
             Tax returns
             Eligibility criteria
IDENTIFIER:  Earned Income Tax Credit
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Finance, U.S.  Senate

May 1997

EARNED INCOME CREDIT - CLAIMANTS'
CREDIT PARTICIPATION AND INCOME
PATTERNS, TAX YEARS 1990 THROUGH
1994

GAO/GGD-97-69

Earned Income Credit

(268747)


Abbreviations
=============================================================== ABBREV

  AGI - adjusted gross income
  CPI-U - consumer price index for all urban consumers
  EIC - Earned Income Credit
  IMF - Individual Masterfile
  IRS - Internal Revenue Service
  OBRA - Omnibus Budget Reconciliation Act
  SOI - Statistics of Income
  SSN - Social Security Number

Letter
=============================================================== LETTER


B-272879

May 16, 1997

The Honorable William V.  Roth, Jr.
Chairman, Committee on Finance
United States Senate

Dear Mr.  Chairman: 

This report responds to your continuing interest in the Earned Income
Credit (EIC)--a refundable tax credit available to low-income,
working taxpayers.  As you requested, this report presents data on
EIC participation and income for EIC claimants that we tracked over a
5-year period.  Specifically, we analyzed, for tax years 1990 through
1994, EIC claimants' patterns of claiming the credit, changes in
their income in the years following an EIC claim, and their income
and filing status after leaving the EIC.  We also estimated the
number of 1994 claimants of the EIC for families with children who
would and would not have been eligible for the credit in 1994 if the
1990 maximum income limit was still in effect. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The EIC is a refundable tax credit available to low-income, working
taxpayers.  Congress established the EIC in 1975 to achieve two
long-term objectives:  (1) to offset the impact of Social Security
taxes on low-income families and (2) to encourage low-income families
to seek employment rather than welfare. 

EIC eligibility depends on taxpayers' amount of earned income\1 or,
in some cases, adjusted gross income (AGI).\2 Credit amounts depend
on the number of qualifying children who meet age, relationship, and
residency tests.  The credit gradually increases with increasing
income (the phase-in range), plateaus at a maximum amount (the
plateau range), and then gradually decreases until it reaches zero
(the phase-out range).  Taxpayers with earned income or AGI exceeding
the maximum qualifying income level are not eligible for the credit. 
Taxpayers with AGI falling in the credit's phase-out range are to
receive the lesser amount resulting from using their earned income or
AGI in calculating the credit. 

During the 5 tax years covered by our analysis, EIC coverage and
benefit rules were modified twice--in 1990 and again in 1993.  In the
1990 Omnibus Budget Reconciliation Act (OBRA), Congress made two
major changes to the EIC that took effect in tax year 1991.  These
changes (1) adjusted the credit structure to grant different credit
amounts to taxpayers with one qualifying child and taxpayers with two
or more qualifying children and (2) added two supplemental
credits--one for taxpayers with a child under 1 year of age and
another for taxpayers who paid health insurance premiums on policies
covering their children.  OBRA 1990 also allowed taxpayers with a
filing status of single to claim the credit and specified a general
increase in credit rates that was to be phased-in over a 4-year
period (the planned increase for 1994, however, was superseded by
1993 legislation). 

OBRA 1993 made two changes in the credit's structure that went into
effect in tax year 1994.  First, to simplify EIC filing, the act
repealed the supplemental young child and health insurance credits. 
Second, the act expanded EIC eligibility to include certain taxpayers
without qualifying children or "childless adults."\3 OBRA 1993 also
increased, over a 3-year period beginning in tax year 1994, the
maximum credit for families with children. 

The maximum basic credit amount for EIC families with two or more
children was $953 in tax year 1990, $1,511 in tax year 1993
(reflecting OBRA 1990), and $2,528 in tax year 1994 (reflecting OBRA
1993).  The maximum credit for childless adults in tax year 1994 was
$306. 

Congress made three additional changes to the EIC in the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. 
First, beginning with tax year 1996 returns, the act makes taxpayers
with certain investment income greater than $2,200 ineligible for the
EIC, regardless of their earned income or AGI.  Second, the act
created a "modified AGI" to be used in calculating the credit. 
Modified AGI disregards certain losses from investments and
businesses.  And third, the act denies the EIC to filers without
valid Social Security Numbers (SSN).\4

Appendix I contains a more detailed discussion of EIC eligibility and
credit calculation rules for tax years 1990 through 1994--the years
included in our analysis--as well as for tax years 1995 and 1996. 


--------------------
\1 Earned income for calculating the EIC includes both taxable and
nontaxable earned income.  For the EIC, taxable earned income
includes (1) wages, salaries, and tips; (2) union strike benefits;
(3) long-term disability benefits received prior to minimum
retirement age; and (4) net earnings from self-employment. 
Nontaxable earned income includes (1) voluntary salary deferral such
as 401(k) plans or the federal thrift savings plan, (2) pay earned in
a combat zone, (3) basic quarter and subsistence allowances from the
U.S.  military, (4) housing allowances or rental value of a parsonage
for the clergy, and (5) excludable dependent care benefits. 

\2 In addition to taxpayers' taxable earned income, AGI includes
their taxable income from other sources such as investments, alimony,
and unemployment compensation.  Beginning in tax year 1996, taxpayers
are to use a newly defined "modified AGI" to determine EIC
eligibility and to calculate the credit (see app.  I for a definition
of modified AGI). 

\3 These taxpayers may, in fact, be noncustodial parents or may live
with a child who, for some reason, cannot be claimed as an EIC
qualifying child.  Throughout the report, however, we refer to this
group of EIC claimants as "childless adults" as a simple means to
distinguish them from EIC claimants who have one or more qualifying
children.  We refer to this latter group as "EIC families with
children."

\4 Taxpayers were already required to provide valid SSNs for
qualifying children. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

From tax year 1990 through tax year 1994, 27.3 million taxpayers
claimed the EIC for families with children, at least once.\5 They
made a total of 69 million claims totaling $73 billion (in 1996
dollars).  About two-thirds of these taxpayers claimed the credit at
least twice during the 5-year period, and about half claimed it in 3
or more of the 5 years. 

To better understand taxpayers' patterns of claiming the EIC, we
separately tracked tax year 1990 through 1993 claimants in the years
following their claims (up to and including tax year 1994) and
averaged the results.\6 Most EIC claimants, on average, took the
credit at least one more time.  In the 2 years following a claim, for
example, about three-quarters of claimants took the credit in at
least 1 of the 2 years while the remaining one-quarter did not claim
the credit in either of the 2 years.  Not only did most taxpayers who
claimed the EIC do so more than once, but many took the credit
several years in a row.  On average, about half of the claimants in a
year took the credit in each of the next 2 years (that is, for at
least 3 consecutive years). 

Congress designed the EIC, in part, as an incentive for low-income
taxpayers to find and keep jobs rather than relying on welfare.  We
estimated the proportion of EIC claimants who continued to file tax
returns, as a proxy for continued participation in the workforce. 
Using income categories related to the EIC phase-in, plateau, and
phase-out ranges, we also estimated the extent to which claimants
reported higher or lower income in later years.\7 We found that most
EIC claimants continued to file a return over the 4 years following a
claim--91 percent filed a return in the first year, and 82 percent
did so in the fourth year.  On average, in the first and fourth years
after a claim, respectively, 25 and 36 percent of claimants reported
higher income while 21 and 29 percent reported lower income or did
not file a return. 

When we tracked taxpayers who at some point stopped claiming the EIC,
we found that most filed a return in the first and second consecutive
years of not claiming the credit, but about one-third did not.  Among
taxpayers in their first year not claiming the EIC, almost equal
proportions reported income within the EIC range and above the EIC
limit.  Among taxpayers in a second consecutive year not claiming the
credit, the proportion of those reporting income above the EIC limit
increased.  About 40 percent of taxpayers who filed a return in the
first year they stopped claiming the EIC also reported a change in
filing status--predominantly from head of household status to single
or married filing jointly. 

To qualify for the EIC in tax year 1990, taxpayers needed to have at
least one qualifying child and reported income less than $23,750 (in
1994 dollars).  If this maximum income limit would have applied in
tax year 1994, about 2 percent of 1994 claimants of the EIC for
families with children would not have been able to claim the credit
because of income above the eligibility threshold.  These taxpayers
claimed about $48 million\8 in EIC in 1994, or about 0.2 percent of
the total EIC for families with children that year. 


--------------------
\5 Beginning in tax year 1994, the EIC was extended to low-income,
working taxpayers who do not have a child meeting the criteria for an
EIC qualifying child.  About 4 7million taxpayers claimed this type
of EIC in tax year 1994, 600,000 (confidence interval  18 percent)
of whom had claimed the EIC for families with children at some point
between tax years 1990 and 1993.  These 600,000 taxpayers are
included in the 27.3 million figure. 

\6 Throughout this report, we present average percentages for 1, 2,
3, and 4 years after a claim.  Because our data included only tax
years 1990 through 1994, however, the basis for each estimate is
different.  The estimates for the first year after a claim are
averages based on 53.6 million claims made in tax years 1990 through
1993; estimates for the second year after are averages based on 39.1
million claims made in tax years 1990 through 1992; estimates for the
third year after are averages based on 25.5 million claims made in
tax years 1990 and 1991; and estimates for the fourth year after are
based only on 12.1 million tax year 1990 claims. 

\7 Throughout the report, "reported income" refers to either EIC
earned income or AGI.  For taxpayers claiming the EIC, our income
measure for that year was the actual income used to determine the
credit--either EIC earned income or AGI.  For tax years in which
taxpayers did not claim the credit, and therefore did not report an
EIC earned income amount, we used reported AGI as our income measure. 

\8 Confidence interval is  27 percent of the reported value. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

Our objectives were to (1) develop longitudinal data on taxpayers'
patterns of claiming the EIC, changes in EIC claimants' income in the
years after an EIC claim, and claimants' income and filing status
after leaving the EIC and (2) estimate the number of 1994 EIC
claimants who would and would not have been eligible for the credit
if the 1990 EIC maximum income limit was still in effect. 

We obtained and analyzed the Internal Revenue Service's (IRS)
Statistics of Income (SOI) individual income tax databases for tax
years 1990 through 1994, the most recent 5 years of data available at
the time we began our work.  Each SOI database contains tax return
information for a random sample of taxpayers.  Included in this
sample are a subsample of taxpayers who are included every year in
which they file.  From these longitudinal records, we created a
database of taxpayers who claimed the EIC in any 1 of the 5 years.\9
To get additional information on taxpayers who were not included in
the SOI sample in certain years, we asked IRS to match SSNs for those
taxpayers to primary and secondary (spouse) SSNs on the individual
masterfile (IMF).  From this match, done in December 1996, we
determined if the taxpayer had not filed a return for the year in
question, had filed as a secondary filer on a joint return, or had
filed too late to be included in the SOI database.  For those who had
filed, we were able to obtain the AGI and EIC amount, if any. 

To identify patterns of claiming the EIC, we determined the years on
and off the EIC for each taxpayer in our database.  We used this
participation data to estimate the percentage of EIC claimants who,
over the 5-year period, claimed the credit for 1, 2, 3, 4, or 5
years.  To provide specific data on EIC participation patterns, we
estimated the proportion of EIC claimants in each year who, in the 1
to 4 years following a claim, (1) claimed the credit at least once
more, (2) did not claim the credit again, or (3) continued to
consecutively claim the credit.  We averaged the results for 1 to 4
years after a claim across relevant tax years. 

To track changes in the income of EIC claimants in the years after an
EIC claim, we used a series of income categories corresponding to the
EIC income ranges for each tax year and ranges for income above the
EIC limit.  We then estimated the average proportion of EIC claimants
whose income stayed in the same range or moved among ranges in the
years after an EIC claim. 

To describe the status of EIC claimants who at any point stopped
claiming the credit between 1990 and 1994, we determined, for the
first and second consecutive years off the credit, the proportion of
former claimants who (1) reported AGI either above or below the EIC
limit, (2) claimed no dependent exemptions, or (3) reported a change
in filing status from the year in which the EIC was claimed to the
year the credit was not claimed.  We also determined the proportion
who did not file a return. 

Our analyses of consecutive years claiming and not claiming the
credit and changes in reported income were based on tracking EIC
claimants in the years following an EIC claim.  For this type of
analysis, we made separate estimates for tax year 1990, 1991, 1992,
and 1993 claimants and combined the results across all years.  For
example, the average for EIC participation or income the first year
after a claim is based on claims first made in tax years 1990, 1991,
1992, and 1993; estimates for the second year after a claim are based
on claims first made in tax years 1990, 1991, and 1992.  Estimates
for the third year after a claim are based on claims made in tax
years 1990 and 1991; estimates for the fourth year after a claim are
based only on tax year 1990 claims. 

To estimate the number of 1994 claimants of the credit for families
with children who would and would not have been eligible for the
credit if the 1990 EIC maximum income limit was still in effect, we
indexed the 1990 EIC phase-in, plateau, and phase-out cutoffs to 1994
dollars and applied the indexed cutoff points to the 1994 EIC
claimants' reported income.  We also estimated the amount of 1994 EIC
claims made by claimants who reported income above the indexed 1990
EIC limit. 

All data presented in this report are estimates based on the SOI
longitudinal sample.  Accordingly, we calculated confidence intervals
at the 95-percent confidence level to indicate the precision of the
estimates included in the body of the report.  Unless otherwise
noted, the confidence intervals for percentages are less than  5
percentage points and for other statistics are less than  10 percent
of the reported value.  A more detailed explanation of our scope and
methodology is included in appendix II.  Detailed data tables
supporting our findings are included in appendix III. 

We did our work in Washington, D.C., from June 1996 to March 1997 in
accordance with generally accepted government auditing standards.  We
requested comments on a draft of this report from the Commissioner of
Internal Revenue or her designee and from officials at the Department
of the Treasury.  The IRS National Director of Legislative Affairs
responded in an April 21, 1997, letter saying that the agency agreed
with the draft report.  Economists from the Department of the
Treasury's Office of Tax Analysis provided oral comments that were
technical in nature and involved presentation and definitional
issues.  We made changes to the report where appropriate. 


--------------------
\9 Estimates of EIC claims and amounts from SOI data may differ from
what taxpayers actually receive.  IRS examinations and other actions
may make the actual EIC amount granted to a taxpayer different from
the amount claimed on the tax return. 


   EIC PARTICIPATION INCREASED
   STEADILY FROM TAX YEAR 1990
   THROUGH TAX YEAR 1994
------------------------------------------------------------ Letter :4

The number of taxpayers claiming the EIC and total program costs
increased steadily between tax years 1990 and 1994.  In large part,
this growth reflects the impact of either eligibility or benefit
expansions implemented in tax years 1991 and 1994.  Beginning in tax
year 1991, taxpayers were able to take advantage of the supplemental
young child and health insurance credits, separate credit rates for
larger families, and an increase in the basic credit.  In tax year
1994, repeal of the supplemental credits went into effect, but a
childless adult credit and another general increase in credit amounts
for families with children were available. 

As shown in figure 1, both the number of taxpayers claiming the
credit and EIC program costs (in 1996 dollars) increased steadily
from tax years 1990 through 1994.  Overall, 30.7 million taxpayers
claimed the EIC at least once between tax years 1990 and 1994.  They
made a total of 72.2 million EIC claims totaling $74 billion (in 1996
dollars) over the 5-year period.  Among the tax year 1994 claimants
were 4 million taxpayers who claimed the EIC for childless adults,
600,000\10 of whom had previously claimed the credit for families
with children at least once between 1990 and 1993. 

   Figure 1:  EIC Costs and Number
   of Claims, Tax Years 1990
   Through 1994

   (See figure in printed
   edition.)

Source:  GAO analysis of SOI data. 

Many taxpayers who claimed the EIC did so more than once.  As shown
in figure 2, from 1990 through 1994, about two-thirds of the 27.3
million taxpayers who claimed the EIC for families with children at
least once,\11 claimed the credit two or more times.  About half of
the 27.3 million taxpayers claimed the credit for 3 or more of the 5
years. 

   Figure 2:  Number of Years the
   EIC Was Claimed in a 5-Year
   Period by Taxpayers Who Claimed
   the EIC for Families With
   Children at Least Once in Tax
   Years 1990 Through 1994

   (See figure in printed
   edition.)

Note:  Percentages are based on 27.3 million taxpayers who claimed
the EIC for families with children at least once between tax years
1990 and 1994.  Because the childless adult credit was only available
for 1 of our 5 years, this figure excludes the 3.4 million taxpayers
who claimed only the childless adult credit in tax year 1994. 

Source:  GAO analysis of SOI and IMF data. 


--------------------
\10 Confidence interval is  18 percent of the reported value. 

\11 These 27.3 million taxpayers made 68.8 million claims in tax
years 1990 through 1994.  The claims totaled $73 billion in 1996
dollars. 


   EIC PARTICIPATION PATTERNS
------------------------------------------------------------ Letter :5

To better understand taxpayer's patterns of claiming the EIC, we
separately tracked tax year 1990 through 1993 claimants in the years
following their claims and averaged the results.\12 We found that
most EIC claimants, on average, took the credit at least once more. 
In the 2 years following a claim, for example, about three-quarters
of the claimants took the credit in at least 1 of the 2 years while
the remaining one-quarter did not claim the credit in either of the 2
years.  Not only did most taxpayers who claimed the EIC do so more
than once, but many took the credit several years in a row.  On
average, about half of all claimants in a year took the credit in
each of the following 2 years (that is, for at least 3 consecutive
years).  These participation patterns are reflected in figures 3 and
4. 

   Figure 3:  Percentage of EIC
   Claimants Who Did and Did Not
   Claim the Credit Again, 1 to 4
   Years After a Claim

   (See figure in printed
   edition.)

Note:  The first year average is based on 53.6 million claims made in
tax years 1990 through 1993; the second year average is based on 39.1
million claims made in tax years 1990 through 1992; the third year
average is based on 25.5 million claims made in tax years 1990 and
1991; and the fourth year percentage is based on 12.1 million tax
year 1990 claims. 

Source:  GAO analysis of SOI and IMF data. 

   Figure 4:  Percentage of EIC
   Claimants Who Took the Credit
   for 2 to 5 Consecutive Years

   (See figure in printed
   edition.)

Note:  The 2 consecutive year average is based on 53.6 million claims
made in tax years 1990 through 1993; the 3 consecutive year average
is based on 39.1 million claims made in tax years 1990 through 1992;
the 4 consecutive year average is based on 25.5 million claims made
in tax years 1990 and 1991; and the 5 consecutive year percentage is
based on 12.1 million tax year 1990 claims. 

Source:  GAO analysis of SOI and IMF data. 


--------------------
\12 Throughout the report, we present average percentages for 1, 2,
3, and 4 years after a claim.  Because our data included only tax
years 1990 through 1994, however, the basis for each estimate is
different.  The estimates for the first year after a claim are
averages based on 53.6 million claims made in tax years 1990 through
1993; estimates for the second year after are averages based on 39.1
million claims made in tax years 1990 through 1992; estimates for the
third year after are averages based on 25.5 million claims made in
tax years 1990 and 1991; and estimates for the fourth year after are
based only on 12.1 million tax year 1990 claims. 


   CHANGES IN EIC CLAIMANTS'
   INCOME IN THE YEARS FOLLOWING A
   CLAIM
------------------------------------------------------------ Letter :6

Congress designed the EIC, in part, as an incentive for low-income
taxpayers to find and keep jobs.  We tracked EIC claimants' reported
income in the years following a claim to estimate the extent to which
their reported income changed among EIC income ranges or moved above
the EIC maximum income limit.  As a proxy for continued participation
in the workforce, we also estimated the proportion of EIC claimants
who continued to file returns, while recognizing that the filing of a
return does not necessarily mean that the taxpayer was working. 

The range of eligible income for the EIC is fairly broad.  For tax
year 1994 claimants with two or more qualifying children, for
example, the phase-in range included reported income below $8,400
while the phase-out range included reported income up to $25,295. 
Table 1 shows the tax year 1990 through 1994 EIC income ranges for
claimants with children that were used in our analysis.\13 For tax
year 1994, about 60 percent of claimants with qualifying children
reported income in the phase-out range and 27 percent reported income
in the phase-in range. 



                                Table 1
                
                  EIC Income Ranges for Tax Years 1990
                              Through 1994


                                Phase-
Tax year                            in         Plateau       Phase-out
----------------------------  --------  --------------  --------------
1990                              $1 -        $6,800 -       $10,750 -
                                $6,799         $10,749         $20,263
1991                              $1 -        $7,100 -       $11,250 -
                                $7,099         $11,249         $21,249
1992                              $1 -        $7,500 -       $11,850 -
                                $7,499         $11,849         $22,369
1993                              $1 -        $7,750 -       $12,200 -
                                $7,749         $12,199         $23,049
1994 families with one            $1 -        $7,750 -       $11,000 -
 qualifying child               $7,749         $10,999         $23,754
1994 families with two or         $1 -        $8,400 -       $11,000 -
 more qualifying children       $8,399         $10,999         $25,295
----------------------------------------------------------------------
Source:  IRS EIC tables. 

Figure 5 shows, for the 4 years following a claim, the extent to
which claimants' reported income changed and the proportion of
claimants who did not file a return.  The largest group of claimants
in each year are those who continued to report income in the same EIC
range, although the proportion declined over the 4 years.  The
proportion of claimants reporting income in a higher EIC range or
above the EIC limit increased, as did the proportion of claimants who
did not file a return.  On average, in the first and fourth years
after a claim, respectively, 25 and 36 percent of claimants reported
higher income while 21 and 29 percent reported lower income or did
not file a return. 

   Figure 5:  Changes in EIC
   Claimants' Reported Income
   Relative to EIC Income Ranges,
   From 1 to 4 Years After an EIC
   Claim

   (See figure in printed
   edition.)

Source:  GAO analysis of SOI and IMF data. 

Figures 6 and 7 show similar income patterns for phase-in and
phase-out range claimants separately.  Among both subgroups of
claimants over the 4-year period after a claim, the largest
proportion continued to report income in the same income category
while the proportion of claimants reporting higher income and the
proportion not filing a return increased. 

   Figure 6:  Changes in Income
   for EIC Claimants Who Claimed
   the Credit With Reported Income
   in the Phase-in Range

   (See figure in printed
   edition.)

Note:  Totals for each year after a claim may not add to 100 percent
due to rounding. 

Source:  GAO analysis of SOI and IMF data. 

   Figure 7:  Changes in Income
   for EIC Claimants Who Claimed
   the Credit With Reported Income
   in the Phase-out Range

   (See figure in printed
   edition.)

Note:  Totals for each year after a claim may not add to 100 percent
due to rounding. 

Source:  GAO analysis of SOI and IMF data. 

Although a larger percentage of phase-in range claimants changed
income categories in later years compared to phase-out range
claimants, for EIC families with children, the phase-in range is
considerably narrower than the phase-out range.  On average, then,
claimants in the phase-in range may have needed a smaller dollar
change in income to move out of their range.  Also, it was possible
for a taxpayer to report the same income in two different tax years
but have that income fall into two different EIC ranges because of
inflation adjustments and legislative action in 1993.  For example,
the 1990 phase-in range included income under $7,710 in 1994 dollars;
the 1994 phase-in range included income under $7,750 for families
with one qualifying child and under $8,400 for families with two or
more qualifying children.\14


--------------------
\13 See app.  I, tables I.1 through I.5 for the phase-in rates,
maximum credit amounts, and phase-out rates associated with each
income range. 

\14 Differences in income range parameters were most noticeable from
tax year 1993 to 1994.  OBRA 1993 narrowed the plateau range and
increased the phase-out range at both the upper and lower ends.  The
differences from 1990 through 1993 were much smaller.  (See table 1.)


   TAXPAYERS WHO STOPPED CLAIMING
   THE EIC
------------------------------------------------------------ Letter :7

To describe the status of EIC claimants who at any point stopped
claiming the credit between 1990 and 1994, we tracked claimants'
income in the first and second consecutive years off the credit.  As
shown in figure 8, in their first and second consecutive years off
the EIC, most former claimants filed a return, but about one-third
did not.  Almost equal proportions of taxpayers in their first year
off the credit reported AGI within the EIC income range, reported AGI
above the EIC income limit or did not file a return.  Among taxpayers
who did not claim the credit for a second consecutive year, the
proportion of those reporting AGI above the EIC income limit
increased as did the proportion not filing. 

   Figure 8:  EIC Claimants'
   Reported AGI in the First and
   Second Consecutive Years off
   the EIC

   (See figure in printed
   edition.)

Source:  GAO analysis of SOI and IMF data. 

Taxpayers can stop claiming the EIC for a variety of reasons:  (1)
their income is above the eligibility threshold; (2) they are unable
to claim a qualifying child; (3) they do not claim the credit,
although they are qualified; (4) they leave the workforce; or (5)
they do not file a return.  We were unable to determine, however,
which reasons applied to the taxpayers in our analysis who stopped
claiming the EIC.  Although we did not have data on qualifying
children for taxpayers who did not claim the credit, we did have data
on reported dependent exemptions.  In the first year off the EIC, 9
percent of the taxpayers reporting AGI under the EIC limit did not
claim any dependent exemptions.  In the second consecutive year off
the EIC, 11 percent of those reporting AGI under the EIC limit did
not claim a dependent exemption.  However, having no dependents would
not have necessarily disqualified someone from claiming the EIC
because it was possible to claim a child who was not a dependent as
an EIC qualifying child. 

Changes in filing status, while generally not affecting EIC
eligibility directly, could also play a role in determining whether a
taxpayer can claim the credit.  For example, a head of household EIC
claimant who marries may then have a combined income above the EIC
limit.  The majority of taxpayers who stopped claiming the EIC and
still filed a return reported the same filing status--62 percent in
the first year off the EIC and 58 percent among those in the second
consecutive year off.  The remainder reported a change in filing
status that coincided with leaving the EIC.  As shown in table 2, a
change from head of household status to single or married accounted
for most of the taxpayers who reported a change in filing status. 
Almost all of the head of household EIC claimants whose filing status
changed to single or married filing separately continued to report
AGI under the EIC limit.  Conversely, most of those whose filing
status changed to married filing jointly reported income above the
EIC limit. 



                                Table 2
                
                  Filing Status Changes From a Year in
                 Which the EIC Was Claimed to the First
                            Year Off the EIC


                                             Married
                                   Married    filing   Head of
Filing status in the                filing  separate  househol
year of the EIC claim\a   Single   jointly        ly         d   Total
------------------------  ------  --------  --------  --------  ------
Head of household            48%       30%        5%               83%
Married filing jointly         5                   6         1     13%
Single                                   2         0         1      3%
Widow(er)                      0         0         0         1      1%
======================================================================
Total                        54%       32%       11%        3%    100%
----------------------------------------------------------------------
Note 1:  Percentages are based on approximately 3.8 million
departures from the EIC that coincided with a filing status change. 

Note 2:  Percentages may not add to totals due to rounding. 

\a Taxpayers with a filing status of married filing separately are
ineligible for the EIC. 

Source:  GAO analysis of SOI and IMF data. 


   TAX YEAR 1990 MAXIMUM INCOME
   LIMIT APPLIED TO TAX YEAR 1994
   CLAIMANTS OF THE EIC FOR
   FAMILIES WITH CHILDREN
------------------------------------------------------------ Letter :8

To qualify for the EIC in tax year 1990, taxpayers needed to have at
least one qualifying child and reported income of less than $23,750
(in 1994 dollars).  As shown in table 3, if this income limit had
applied to tax year 1994 claimants of the EIC for families with
children, about 2 percent of those who claimed the credit for
families with children in tax year 1994 would not have been able to
claim the credit because of income above the eligibility threshold. 
These taxpayers claimed about $48 million\15 in EIC in 1994, or 0.2
percent of the total EIC for families with children that year.




                                Table 3
                
                Distribution Among EIC Income Ranges for
                 1994 Claimants of the EIC for Families
                With Children Using 1994 and 1990 Income
                                 Limits


                         Number of               Number of
                          1994 EIC                1994 EiC
                          families                families
                              with                    with
                          children  Percentage    children  Percentage
                               (in          of         (in          of
EIC income range         millions)   claimants   millions)   claimants
----------------------  ----------  ----------  ----------  ----------
Phase-in                       3.9       26.7%         3.9       27.1%
Plateau                        2.1        14.3         3.1        21.5
Phase-out                      8.6        59.0         7.1        49.1
Above phase-out point                                  0.3         2.4
======================================================================
Total                         14.5      100.0%        14.5      100.0%
----------------------------------------------------------------------
Note:  Numbers and percentages may not add to totals due to rounding. 

\a 1990 range breakpoints were indexed to 1994 dollars using the
consumer price index for all urban consumers (CPI-U) as reported by
the Bureau of Labor Statistics and EIC indexing methodology as
prescribed by the Internal Revenue Code. 

Source:  GAO analysis of SOI data. 


--------------------
\15 Confidence interval is  27 percent of the reported value. 


---------------------------------------------------------- Letter :8.1

As agreed with your office, unless you publicly release its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this letter.  At that time, we will send copies to
the Ranking Minority Member of your committee and the Chairmen and
Ranking Minority Members of other interested congressional
committees, the Secretary of the Treasury, the Commissioner of
Internal Revenue, and other interested parties. 

Major contributors to this report are listed in appendix IV.  If you
or your staff have any questions, please call me on (202) 512-5594. 

Sincerely yours,

James R.  White
Associate Director, Tax Policy
 and Administration Issues


EIC ELIGIBILITY RULES AND AMOUNTS
FOR TAX YEARS 1990 THROUGH 1996
=========================================================== Appendix I

The basic structure for calculating EIC amounts has remained the same
since 1990.  The credit gradually increases with increasing income
(phase-in range), plateaus at a maximum amount (plateau range), and
then decreases until it reaches zero (phase-out range).  For
taxpayers with income in the phase-in range, a 15 percent phase-in
rate, for example, means that for each additional $100 of earned
income, the taxpayer receives $15 in EIC until income reaches the top
of the phase-in range.  All taxpayers with income in the plateau
range receive the same (maximum) EIC amount.  For taxpayers with
income in the phase-out range, a 10 percent phase-out rate, for
example, means that for every additional $100 in income, the credit
is reduced by $10.  If taxpayers' earned income or adjusted gross
income (AGI) exceeds the maximum qualifying income level, they are
not eligible for the credit.  When taxpayers' AGI is in the credit's
phase-out range, they receive the lesser amount resulting from using
their earned income or AGI in calculating the credit. 

The rules regarding which taxpayers are eligible for the EIC and the
formulas used to calculate the credit have undergone several changes
since 1990.  This appendix explains the specifics of EIC eligibility,
how the credit was structured, and how benefit amounts were
determined\16 for tax year 1990 along with subsequent changes
effective in tax years 1991 through 1996. 


--------------------
\16 The income breakpoints used in this report to define the EIC
phase-in, plateau, and phase-out ranges were taken from IRS EIC
tables that taxpayers used to determine their credit amount.  These
breakpoints may differ slightly from those calculated mathematically
using the phase-in and phase-out rates and maximum credit amount
established by law. 


   TAX YEAR 1990
--------------------------------------------------------- Appendix I:1

To be eligible for the credit in tax year 1990, the following basic
rules applied. 

  The taxpayer must have (1) filed as married filing jointly and have
     been entitled to a dependent exemption under Internal Revenue
     Code section 151 for a child, (2) filed as a surviving spouse as
     determined under Internal Revenue Code section 2(a), or (3)
     filed as a head of household as determined under Internal
     Revenue Code section 2(b) with certain modifications. 

  The taxpayer's child must have had the same principal place of
     abode as the taxpayer for more than half of the tax year and
     that abode must have been in the United States. 

In addition, the taxpayer's maximum allowable income (either earned
income or AGI) was $20,263.  Table I.1 shows the details of how EIC
amounts were to be calculated for tax year 1990. 



                               Table I.1
                
                   EIC Calculations for Tax Year 1990

                                                   EIC calculation for
                                                  families with one or
EIC range                                                more children
----------------------------------------------  ----------------------
Phase-in
----------------------------------------------------------------------
Income range                                                $1 -$6,799
Phase-in rate                                                      14%

Plateau
----------------------------------------------------------------------
Income range                                           $6,800 -$10,749
Maximum credit                                                    $953

Phase-out
----------------------------------------------------------------------
Income range                                          $10,750 -$20,263
Phase-out rate                                                     10%
----------------------------------------------------------------------
Source:  Internal Revenue Code and IRS EIC tables. 


   TAX YEAR 1991
--------------------------------------------------------- Appendix I:2

In OBRA 1990, Congress made several changes to the EIC that took
effect in tax year 1991.  The changes

  defined an EIC "qualifying child" to mean a child who (1) is an EIC
     claimant's son, daughter, adopted child, grandchild, stepchild,
     or foster child; (2) is under age 19, or under age 24 and a
     full-time student, or any age and permanently and totally
     disabled; and (3) lives in the claimant's home in the United
     States for more than half of the year (or all of the year if a
     foster child);

  adjusted the credit structure to grant different credit amounts to
     taxpayers with one qualifying child and taxpayers with two or
     more qualifying children;

  added two supplemental credits--one going to taxpayers with a child
     under 1 year of age and another to taxpayers who paid health
     insurance premiums on policies covering their children;

  allowed taxpayers with a "single" filing status to claim the
     credit; and

  specified a general increase in credit rates that was to be phased
     in over 4 years (the planned increase for 1994 was superseded by
     1993 legislation). 

The supplemental credit structure was similar to that of the basic
credit.  The supplemental credit for children under 1 year of age
added 5-percentage points to the phase-in rate and 3.57-percentage
points to the phase-out rate.  Similarly, the health insurance credit
added up to 6-percentage points to the phase-in rate and
4.285-percentage points to the phase-out rate.  The health insurance
credit, however, could not exceed the actual amount of health
insurance premiums paid.  Families with one child taking both the
supplemental credit for a young child and the maximum supplemental
credit for health insurance would have had an effective phase-in rate
of 27.7 percent and a phase-out rate of 19.785 percent. 

Table 1.2 shows how the basic credit was to be calculated for tax
year 1991. 



                               Table I.2
                
                 EIC Calculations for the Tax Year 1991
                              Basic Credit

                             EIC calculation for   EIC calculation for
                               families with one  families with two or
EIC range                                  child         more children
--------------------------  --------------------  --------------------
Phase-in
----------------------------------------------------------------------
Income range                          $1 -$7,099            $1 -$7,099
Phase-in rate                              16.7%                 17.3%

Plateau
----------------------------------------------------------------------
Income range                     $7,100 -$11,249       $7,100 -$11,249
Maximum credit                            $1,192                $1,235

Phase-out
----------------------------------------------------------------------
Income range                    $11,250 -$21,249      $11,250 -$21,249
Phase-out rate                            11.93%                12.36%
----------------------------------------------------------------------
Note:  In addition to the basic EIC credit, taxpayers may also have
been eligible for a supplemental health insurance credit of up to
$428 and/or a supplemental credit for a child born in 1991 of up to
$357. 

Source:  Internal Revenue Code and IRS EIC tables. 


   TAX YEAR 1992
--------------------------------------------------------- Appendix I:3

No major changes to the EIC were made effective for tax year 1992. 
However, the phase-in and phase-out rate changes specified under OBRA
1990 were implemented.  Table I.3 shows how the basic credit was to
be calculated for tax year 1992. 



                               Table I.3
                
                 EIC Calculations for the Tax Year 1992
                              Basic Credit

                             EIC calculation for   EIC calculation for
                               families with one  families with two or
EIC range                                  child         more children
--------------------------  --------------------  --------------------
Phase-in
----------------------------------------------------------------------
Income range                          $1 -$7,499            $1 -$7,499
Phase-in rate                              17.6%                 18.4%

Plateau
----------------------------------------------------------------------
Income range                     $7,500 -$11,849       $7,500 -$11,849
Maximum credit                             $1324                $1,384

Phase-out
----------------------------------------------------------------------
Income range                    $11,850 -$22,369      $11,850 -$22,369
Phase-out rate                            12.57%                13.14%
----------------------------------------------------------------------
Note:  In addition to the basic EIC credit, taxpayers may also have
been eligible for a supplemental health insurance credit of up to
$451 and/or a supplemental credit for a child born in 1992 of up to
$376. 

Source:  Internal Revenue Code and IRS EIC tables. 


   TAX YEAR 1993
--------------------------------------------------------- Appendix I:4

No major changes to the EIC were made effective in tax year 1993. 
Table I.4 shows how the EIC basic credit was to be calculated and
reflects the rate changes mandated in OBRA 1990. 



                               Table I.4
                
                 EIC Calculations for the Tax Year 1993
                              Basic Credit

                             EIC calculation for   EIC calculation for
                               families with one  families with two or
EIC range                                  child         more children
--------------------------  --------------------  --------------------
Phase-in
----------------------------------------------------------------------
Income range                          $1 -$7,749            $1 -$7,749
Phase-in rate                              18.5%                 19.5%

Plateau
----------------------------------------------------------------------
Income range                     $7,750 -$12,199       $7,750 -$12,199
Maximum credit                            $1,434                $1,511

Phase-out
----------------------------------------------------------------------
Income range                    $12,200 -$23,049      $12,200 -$23,049
Phase-out rate                            13.21%                13.93%
----------------------------------------------------------------------
Note:  In addition to the basic EIC credit, taxpayers may also have
been eligible for a supplemental health insurance credit of up to
$465 and/or a supplemental credit for a child born in 1993 of up to
$388. 

Source:  Internal Revenue Code and IRS EIC tables. 


   TAX YEAR 1994
--------------------------------------------------------- Appendix I:5

In OBRA 1993 and other legislation, Congress made several notable
changes to the EIC that went into effect in tax year 1994.  These
changes

  simplified EIC filing by eliminating the supplemental young child
     and health insurance credits;

  expanded EIC coverage to include certain taxpayers without
     qualifying children (i.e., "childless adults");

  increased, over a 3-year period beginning in tax year 1994, the
     maximum credit amounts for families with children; and

  denied the EIC for wages earned by prison inmates. 

To receive the new EIC for childless adults, taxpayers (1) had to be
at least 25 but less than 65 years old, (2) had to have income of
less than $9,000, and (3) could not be claimed as a dependent on
another return.  As shown in table I.5, the EIC for childless adults
was structured, like the credit for families with children, with a
phase-in, plateau, and phase-out range. 



                               Table I.5
                
                   EIC Calculations for Tax Year 1994

                                     EIC            EIC
                             calculation    calculation            EIC
                            for families   for families    calculation
                                with one    with two or  for childless
EIC range                          child  more children         adults
-------------------------  -------------  -------------  -------------
Phase-in
----------------------------------------------------------------------
Income range                  $1 -$7,749     $1 -$8,399     $1 -$3,999
Phase-in rate                      26.3%          30.0%          7.65%

Plateau
----------------------------------------------------------------------
Income range                    $7,750 -       $8,400 -       $4,000 -
                                 $10,999        $10,999         $4,999
Maximum credit                    $2,038         $2,528           $306

Phase-out
----------------------------------------------------------------------
Income range                   $11,000 -      $11,000 -       $5,000 -
                                 $23,754        $25,295         $8,999
Phase-out rate                    15.98%         17.86%          7.65%
----------------------------------------------------------------------
Source:  Internal Revenue Code and IRS EIC tables. 


   TAX YEAR 1995
--------------------------------------------------------- Appendix I:6

Effective for tax year 1995, Congress

  extended the EIC to taxpayers living outside the United States
     because of a military assignment if they meet all other
     criteria, and

  denied the credit to anyone who spent part of the tax year as a
     nonresident alien. 

As reflected in table I.6, the second year of rate changes specified
in OBRA 1993 were also implemented. 



                               Table I.6
                
                   EIC Calculations for Tax Year 1995

                                     EIC            EIC
                             calculation    calculation            EIC
                            for families   for families    calculation
                                with one    with two or  for childless
EIC range                          child  more children         adults
-------------------------  -------------  -------------  -------------
Phase-in
----------------------------------------------------------------------
Income range                  $1 -$6,149     $1 -$8,599     $1 -$4,099
Phase-in rate                      34.0%          36.0%          7.65%

Plateau
----------------------------------------------------------------------
Income range                    $6,150 -       $8,600 -       $4,100 -
                                 $11,299        $11,299         $5,149
Maximum credit                    $2,094         $3,110           $314

Phase-out
----------------------------------------------------------------------
Income range                   $11,300 -      $11,300 -       $5,150 -
                                 $24,395        $26,672         $9,229
Phase-out rate                    15.98%         20.22%          7.65%
----------------------------------------------------------------------
Source:  Internal Revenue Code and IRS EIC tables. 


   TAX YEAR 1996
--------------------------------------------------------- Appendix I:7

Congress made three changes to the EIC in the Personal Responsibility
and Work Opportunity Reconciliation Act of 1996 (P.L.  104-193). 
These changes

  denied the EIC to taxpayers with investment income greater than
     $2,200, regardless of their earned income or AGI;

  created a "modified AGI" to be used in calculating the credit that
     excludes certain losses from investments and businesses; and

  denied the credit to taxpayers without valid Social Security
     Numbers (SSN).\17

For most taxpayers, the investment income and modified AGI provisions
were effective for tax year 1996; for taxpayers using the EIC advance
payment option\18 as of June 26, 1996, these two provisions are
effective for tax year 1997.  The SSN provision was effective for all
taxpayers for tax year 1996. 

The investment income exclusion is basically an indirect wealth test
intended to eliminate certain taxpayers from the EIC program. 
Investment income includes taxable and nontaxable interest, taxable
dividends, net rent and royalty income derived from sources outside
the taxpayer's ordinary course of trade or business, capital gain net
income, and passive activity net income.\19 The threshold is to be
indexed for inflation. 

"Modified AGI" for the purposes of the EIC means AGI determined
without regard to (1) net capital losses, (2) net losses from trusts
and estates, (3) net losses from rents and royalties derived outside
the taxpayer's normal course of trade or business, and (4) 50 percent
of net losses from trades or businesses.  The losses subject to the
50 percent exclusion are to be computed separately with respect to
sole proprietorships other than farming, farming sole
proprietorships, and other trades or businesses. 

Table I.7 shows how the EIC was to be calculated for tax year 1996. 



                               Table I.7
                
                   EIC Calculations for Tax Year 1996

                                     EIC            EIC
                             calculation    calculation            EIC
                            for families   for families    calculation
                                with one    with two or  for childless
EIC range                          child  more children         adults
-------------------------  -------------  -------------  -------------
Phase-in
----------------------------------------------------------------------
Income range                  $1 -$6,299     $1 -$8,849     $1 -$4,199
Phase-in rate                      34.0%          40.0%          7.65%

Plateau
----------------------------------------------------------------------
Income range                    $6,300 -       $8,850 -       $4,200 -
                                 $11,649        $11,649         $5,299
Maximum credit                    $2,152         $3,556           $323

Phase-out
----------------------------------------------------------------------
Income range                   $11,650 -      $11,650 -       $5,300 -
                                 $25,077        $28,494         $9,499
Phase-out rate                    15.98%         21.06%          7.65%
----------------------------------------------------------------------
Source:  Internal Revenue Code and IRS EIC tables. 


--------------------
\17 Taxpayers were already required to provide valid SSNs for
qualifying children. 

\18 Taxpayers who expect to qualify for the EIC can, by filing a form
with their employers, receive a portion of their credit in advance as
regular additions to their paychecks. 

\19 The disqualified investment income test was added to the Internal
Revenue Code by P.L.  104-7, effective beginning with tax year 1996. 
The Personal Responsibility and Work Opportunity Reconciliation Act
of 1996, however, amended the disqualified investment income test by
(1) adding capital gain net income and net passive income (if greater
than zero) to the definition of disqualified investment income, (2)
lowering the threshold from $2,350 to $2,200, and (3) indexing the
threshold to inflation after 1996. 


SCOPE, METHODOLOGY, AND PRECISION
OF STATISTICAL ESTIMATES
========================================================== Appendix II

This appendix describes the methodology we used to construct the
longitudinal database that was the basis of our work and the specific
methodology for our data analyses.  This appendix also includes data
on the precision of the statistical estimates included in the body of
this report. 


   METHODOLOGY USED TO DEVELOP THE
   LONGITUDINAL DATABASE
-------------------------------------------------------- Appendix II:1

We obtained and analyzed a longitudinal, random sample of tax returns
filed for tax years 1990 through 1994, the most recent 5-year period
of data available at the time we began our work.  This longitudinal
subsample\20 is part of a larger database generated by IRS'
Statistics of Income (SOI) division. 

From the longitudinal sample, we identified 6,141 taxpayers who
claimed the EIC in any 1 of the 5 years.  The SOI databases for each
tax year include a small percentage of returns from earlier tax
years, and we eliminated returns for tax year 1989 or earlier.  We
also found 44 duplicate SSNs in the sample.  All of the associated
tax returns were retained as separate returns when the names and tax
information showed these were separate taxpayers. 

For most taxpayers, all of the information for our analysis could be
drawn from the SOI database.  However, information was not available
on some taxpayers, in some years after an EIC claim, usually because
the taxpayer did not file a return or because the taxpayer was
included as a secondary filer on another taxpayer's return.  To
obtain information for those years, we asked IRS to match SSNs for
these taxpayers to primary and secondary SSNs on the individual
masterfile (IMF) and print transcripts for tax years 1991 through
1994.  From these transcripts printed in December 1996, we were able
to complete information on AGI, EIC amount (if any), and filing
status (in some cases) for taxpayers who had filed as secondary
filers on a joint return or had filed too late to be included in the
SOI database.\21 We classified taxpayers who did not have return
information for a given tax year either in the SOI database or on the
IMF as not having filed a return that year.  We were not able to
determine why a taxpayer did not file a return. 


--------------------
\20 The SOI "Continuous Work History Panel."

\21 IMF data were used only in tracking forward taxpayers already
having a weighted record in the SOI database. 


   SCOPE AND METHODOLOGY FOR THE
   DATA ANALYSES
-------------------------------------------------------- Appendix II:2

Our analyses included EIC claims made in tax years 1990 through 1994. 
In addition, our analyses of consecutive years on and off the credit
and changes in reported income were limited to tracking EIC claimants
in the years following an EIC claim.  For this type of analysis, we
made separate estimates for tax year 1990, 1991, 1992, and 1993
claimants and averaged the results across all years.  For example,
the averages for EIC participation or income in the first year after
a claim were made on the basis of approximately 54 million claims
made in tax years 1990, 1991, 1992, and 1993; estimates for the
second year after a claim were made on the basis of 39 million claims
made in tax years 1990, 1991, and 1992.  Estimates for the third year
after a claim were made on the basis of about 26 million claims made
in 1990 and 1991 and estimates for the fourth year after a claim were
made on the basis of approximately 12 million tax year 1990 claims. 
The results for both the individual years and combined averages are
given in appendix III. 


      EIC PARTICIPATION PATTERNS
------------------------------------------------------ Appendix II:2.1

To identify patterns of claiming the EIC, we determined the years on
and off the EIC for each taxpayer in our database.  We used this
participation data to estimate the percentage of all EIC taxpayers
who, over the 5-year period, claimed the credit for 1, 2, 3, 4, and 5
years.  We also estimated the percentage of EIC claimants for each
tax year who, in the 1 to 4 years following a claim (as appropriate),
(1) claimed the credit at least once more, (2) did not claim the
credit again, or (3) continued to consecutively claim the credit. 

Some taxpayers who claimed the EIC for families with children between
1990 and 1993 claimed the credit for childless adults in tax year
1994.  We included all tax year 1994 EIC claims in our analysis,
regardless of claim type. 


      CHANGES IN INCOME IN THE
      YEARS FOLLOWING A CLAIM
------------------------------------------------------ Appendix II:2.2

To track changes in EIC claimants' income in the years after an EIC
claim, we created a series of income categories relative to the EIC
income ranges for each tax year.  These categories were (1) negative
AGI, (2) the EIC phase-in range, (3) the EIC plateau range, (4) the
EIC phase-out range, (5) the EIC phase-out amount to 10 percent over
that amount, (6) between 10 and 25 percent over the phase-out amount,
(7) between 25 and 50 percent over the phase-out amount, and (8) 50
percent or more over the phase-out amount.\22 The income parameters
for each category changed slightly from year to year to reflect the
EIC cutoff points specific to each tax year (see app.  I for EIC
income ranges by tax year).  For each tax year, we used taxpayers'
reported AGI (or earned income, if applicable, in the years the
taxpayer claimed the EIC) to assign their income to the appropriate
category.  We then estimated the proportion of EIC claimants whose
income stayed in the same or moved among categories in the years
after an EIC claim. 

Taxpayers who claimed the childless adult credit in 1994 and had
previously claimed the credit for families with children were
included in this analysis.  To provide a common income measure across
all years, however, we disregarded childless adult credit ranges in
1994 and applied all reported 1994 income to the ranges for families
with one qualifying child.  To classify income for non-EIC claimants,
we also used the income parameters for families with one child. 

Because the EIC is indexed for inflation, our income categories also,
in effect, account for inflation adjustments.  A legislative change
implemented in tax year 1994, however, also adjusted the income
ranges more than they would have changed due to straight inflation
adjustments.  It is possible, therefore, that the same reported AGI
could fall into two different ranges from one year to the next.  This
is a limitation of our analysis in terms of identifying true change
in income; however, our primary interest was in tracking changes in
income in the context of claiming the EIC. 


--------------------
\22 To simplify presentation in the body of this report, we collapsed
all categories for income above the phase-out point.  Data using the
detailed categories are included in appendix III. 


      TAXPAYERS WHO STOPPED
      CLAIMING THE EIC
------------------------------------------------------ Appendix II:2.3

To describe the status of EIC claimants who at any point stopped
claiming the credit between 1990 and 1994, we determined, for the
first and second consecutive years off the credit, the proportion of
former claimants who (1) reported AGI either above or below the EIC
limit, (2) claimed no dependent exemptions, and (3) reported a change
in filing status from the year of claiming the EIC to the year off
the EIC.  We also determined the proportion who did not file a
return.  We did not attempt to obtain data on why taxpayers did not
file a return, e.g., left the workforce, death, etc. 


      1990 RULES APPLIED TO 1994
      CLAIMANTS
------------------------------------------------------ Appendix II:2.4

To estimate the number of 1994 EIC claimants of the credit for
families with children who would and would not have been eligible for
the credit if the 1990 EIC maximum income limit still would have been
in effect, we indexed the 1990 EIC phase-in, plateau, and phase-out
cutoffs to 1994 dollars\23 and applied the indexed cutoff points to
the 1994 EIC claimants' reported income.  We also estimated the
amount of 1994 EIC claims made by those claimants who reported income
above the indexed 1990 EIC limit. 


--------------------
\23 We used the CPI-U as reported by the Bureau of Labor Statistics
and EIC indexing methodology as prescribed by the Internal Revenue
Code. 


   PRECISION OF THE STATISTICAL
   ESTIMATES
-------------------------------------------------------- Appendix II:3

All data presented in this report are estimates based on the SOI
longitudinal subsample.  Accordingly, we calculated confidence
intervals at the 95-percent confidence level to indicate the
precision of the estimates included in the body of the report.  For
example, we show in figure 4 that, on average, 56.2 percent of EIC
claimants took the credit for 3 or more consecutive years.  This
estimate is surrounded by a 95-percent confidence interval of  1.4
percent.  This indicates that we are 95 percent confident that the
actual percentage is included in the range of 54.8 to 57.6 percent. 
Unless otherwise noted, the 95-percent confidence intervals for all
percentages in the body of the report are less than  5 percentage
points and for other statistics are less than  10 percent of the
reported estimate. 

Sampling errors used to calculate the confidence intervals are based
on the assumption that the longitudinal database is a simple random
sample of 6,141 taxpayers.  Sampling errors for tax returns from more
than 1 year take into account the fact that individual taxpayers can
file as many as five returns over the 5-year study period.  These
sampling errors come from a cluster sampling formula that recognizes
that tax returns are drawn in clusters associated with each selected
SSN.  Sampling errors for our data are included in appendix III. 

Our estimates are based upon the SOI longitudinal subsample rather
than the full SOI database; consequently, estimates reported here
differ slightly from estimates generated using the full SOI sample. 
For example, in our June 1996 EIC report,\24 we reported 19.1 million
1994 claimants, using the advance version of the full SOI database of
approximately 7,800 EIC returns.  The estimate in this report is 18.5
million, using the longitudinal panel with about 3,700 EIC returns. 
The estimates of the amount of EIC claimed by taxpayers in this
report may also differ from the EIC that taxpayers actually received. 
IRS examinations and other actions may make the actual EIC amount
granted to a taxpayer different from the amount claimed on the tax
return. 


--------------------
\24 Earned Income Credit:  Profile of Tax Year 1994 Credit Recipients
(GAO/GGD-96-122BR, June 13, 1996). 


DETAILED DATA TABLES
========================================================= Appendix III

This appendix presents the detailed data resulting from our analysis
of the longitudinal database.  All data are estimates based on the
sample.  Standard errors for each estimate are in parentheses in each
table cell.  The standard error is a measure of the variability that
is introduced by sampling from the population of EIC claims.  A
95-percent confidence interval is calculated by multiplying the
standard error by 1.96.  For example, in the first row of Table 1,
the standard error of $136 million for tax year 1990 indicates that
the estimate of $7,233,000,000 is surrounded by a 95-percent
confidence interval of about  $267,000,000 ($136,000,000*1.96) and
thus stretches from $6,966,000,000 to $7,500,000,000. 


   EIC CLAIMS AND PROGRAM COSTS
------------------------------------------------------- Appendix III:1

Table III.1 shows the number of EIC claims and EIC amounts for tax
years 1990 through 1994.  Table III.2 provides data on the frequency
with which taxpayers claimed the EIC over the same 5-year period by
EIC status in tax year 1994. 



                              Table III.1
                
                Total EIC Claims and Amounts, Tax Years
                           1990 Through 1994

                    (Standard errors in parentheses)

                                        EIC amount
                                       (dollars in    Number of claims
Tax Year                                 millions)      (in thousands)
------------------------------  ------------------  ------------------
1990                                        $7,233              12,115
                                             (136)               (192)
1991                                        10,926              13,395
                                             (193)               (194)
1992                                        12,698              13,590
                                             (221)               (195)
1993                                        14,935              14,545
                                             (242)               (196)
1994\a                                      20,687              18,550
                                             (322)               (192)
======================================================================
Total                                      $66,478              72,195
                                             (756)               (564)
----------------------------------------------------------------------
Note 1:  Dollar values are not indexed. 

Note 2:  Dollars do not add to total due to rounding. 

\a The 1994 total includes 14.5 million claims for the EIC for
families with children totaling $20 billion and 4 million claims for
the childless adult credit totaling $0.7 billion. 

Source:  GAO analysis of SOI data. 



                                   Table III.2
                     
                     Number of Taxpayers Claiming the EIC in
                       a 5-Year Period, by Number of Years
                      Claiming the EIC and EIC Status in Tax
                                    Year 1994

                        (Number of claimants in thousands
                     
                         Standard errors in parentheses)


Nu
mb
er
of
ye
ar
s
cl
ai
mi
ng
th
e
EI
C
in
th
e
5-
ye
ar
pe
ri
od
be
tw
ee
n
ta
x
ye
ar
s                          Claimed       Claimed
19                       childless     childless
90                    adult credit  adult credit
an   Did not claim     and claimed   and did not     Claimed     Did not
d      the EIC for    EIC at least     claim EIC     EIC but      file a
19       childless  once from 1990  from 1990 to        type   return in
94          adults         to 1993          1993   unknown\a        1994   Total
--  --------------  --------------  ------------  ----------  ----------  ======
1            6,535                         3,410                   2,100
 of          (160)                         (123)                    (99)  12,045
 5                                                                         (191)
 y
 e
 a
 r
 s
2            4,590             290             0          75       1,075   6,030
 of          (140)            (38)                      (19)        (72)   (156)
 5
 y
 e
 a
 r
 s
3            3,690             140             0          35         700   4,565
 of          (127)            (26)                      (13)        (58)   (139)
 5
 y
 e
 a
 r
 s
4            3,220              75             0          60         305   3,660
 of          (120)            (19)                      (17)        (39)   (127)
 5
 y
 e
 a
 r
 s
5            4,260              90             0          55               4,405
 of          (135)            (21)                      (17)               (137)
 5
 y
 e
 a
 r
 s
================================================================================
To          22,295             595         3,410         225       4,180
 t           (175)            (54)         (123)        (33)       (134)  30,705
 a
 l
--------------------------------------------------------------------------------
\a The SOI databases did not include information on some taxpayers,
in some years after an EIC claim.  During our analysis of IMF
transcripts for these taxpayers and years, we found that some had
made EIC claims, but the transcripts did not include EIC earned
income amounts or data on EIC qualifying children.  Consequently, for
tax year 1994 claimants reporting AGI under $9,000 (the income limit
for childless adults), we were unable to precisely determine which
taxpayers had claimed the EIC for families with children and which
had claimed the EIC for childless adults. 

Source:  GAO analysis of SOI and IMF data. 


   EIC PARTICIPATION PATTERNS
------------------------------------------------------- Appendix III:2

Table III.3 provides data on each possible EIC participation pattern
for the 5-year period including tax years 1990 through 1994.  Tables
III.4 and III.5 provide specific data, by tax year, on claimants
continuing to claim the EIC in consecutive years and claimants not
taking the credit again. 



                              Table III.3
                
                Patterns of Claiming the EIC, Tax Years
                           1990 Through 1994

                   (Number of taxpayers and claims in
                               thousands)


                                                                 Total
                                                      Number    number
First year claiming                                       of        of
the EIC during the                                  taxpayer    claims
5-year period         1990  1991  1992  1993  1994         s    made\a
--------------------  ----  ----  ----  ----  ----  --------  --------
Tax year 1990
----------------------------------------------------------------------
                                                      2,050     2,050
                                                       340       680
                                                       165       330
                                                      265       795
                                                       160       320
                                                       60       180
                                                      135       405
                                                     305     1,220
                                                     1,280     2,560
                                                      265       795
                                                      135       405
                                                     395     1,580
                                                      975     2,925
                                                     345     1,380
                                                     835     3,340
                                                  4,405    22,025
======================================================================
Subtotal                                              12,115    40,990

Tax year 1991
----------------------------------------------------------------------
                                                      1,315     1,315
                                                       185       370
                                                       175       350
                                                      220       660
                                                       585     1,170
                                                      160       480
                                                      640     1,920
                                                   1,780     7,120
======================================================================
Subtotal                                               5,060    13,385

Tax year 1992
----------------------------------------------------------------------
                                                      1,040     1,040
                                                       315       630
                                                       640     1,280
                                                    1,710     5,130
======================================================================
Subtotal                                               3,705     8,080

Tax year 1993
----------------------------------------------------------------------
                                                      1,200     1,200
                                                     2,185     4,370
======================================================================
Subtotal                                               3,385     5,570

Tax year 1994\b
----------------------------------------------------------------------
                                                      6,440     6,440
======================================================================
Total                                                 30,705    74,465
----------------------------------------------------------------------
Legend

 Bullet () indicates an EIC claim.  A blank cell indicates no EIC
claim. 

Note:  We did not include standard errors for the data in this table. 
The small values in some cells are subject to large sampling errors
because each sample taxpayer is inflated to represent about 5,000
taxpayers in the total population.  The estimate of 60,000 taxpayers
in the sixth line, for example, comes from only 12 sample
observations.  The data from this table yield more accurate estimates
when aggregated, as they were for other analyses in this report. 

\a The SOI databases did not include information on some taxpayers,
in some years after an EIC claim.  During our analysis of IMF
transcripts for these taxpayers and tax years, we found that some had
made EIC claims.  These IMF-based claims are not included in the
total number of claims, based only on SOI data, for each tax year as
shown in table III.1.  The IMF-based claims were used only in
analyses of claimants' EIC status in the years following their first
SOI-based claim and, thus, are included in this table. 

\b Tax year 1994 total includes 3,410,000 taxpayers who claimed the
credit for childless adults and who had not claimed the EIC for
families with children in tax years 1990 through 1994. 

Source:  GAO analysis of SOI and IMF data. 



                                    Table III.4
                      
                       Number and Percentage of EIC Claimants
                      Who Did Not Claim the Credit Again, 1 to
                       4 Consecutive Years After a Claim, by
                                      Tax Year

                         (Number of claimants in thousands
                      
                          Standard errors in parentheses)



                Number            Number           Number            Number
Ta                  of                of               of                of
x      Total    former            former           former            former
ye  claimant  claimant  Percen  claimant  Percen  claiman  Percen  claimant  Percen
ar         s         s       t         s       t       ts       t         s       t
--  --------  --------  ------  --------  ------  -------  ------  --------  ------
19    12,115     3,480   28.7%     2,820   23.3%    2,390   19.7%     2,050   16.9%
 90    (192)     (124)   (0.9)     (113)   (0.9)    (105)   (0.8)      (98)   (0.8)

19    13,395     3,900   29.1%     2,990   22.3%    2,560   19.1%
 91    (194)     (130)   (0.9)     (116)   (0.8)    (108)   (0.8)

19    13,590     3,500   25.8%     2,645   19.5%
 92    (195)     (125)   (0.8)     (110)   (0.8)

19    14,545     3,755   25.8%
 93    (196)     (128)   (0.8)

===================================================================================
To    53,645    14,635   27.3%     8,455   21.6%    4,950   19.4%     2,050   16.9%
 t     (534)     (214)   (0.5)     (175)   (0.5)    (144)   (0.6)      (98)   (0.8)
 a
 l
 \
 a

-----------------------------------------------------------------------------------
Note:  Blank table cells indicate tax years after 1994 that were not
included in our analysis. 

\a Percentages are averages based on the following:

1 year off--53,645,000 (534,000) claims made in tax years 1990, 1991,
1992 and 1993;
2 consecutive years off--39,100,000 (437,000) claims made in tax
years 1990, 1991, and 1992;
3 consecutive years off--25,510,000 (324,000) claims made in tax
years 1990 and 1991; and
4 consecutive years off--12,115,000 (192,000) claims made in tax year
1990. 

Source:  GAO analysis of SOI and IMF data. 



                                    Table III.5
                      
                       Number and Percentage of EIC Claimants
                         Who Claimed the Credit for 2 to 5
                           Consecutive Years, by Tax Year

                           (Number of claims in thousands
                      
                          Standard errors in parentheses)



Ta
x             Number            Number            Number            Number
ye   Total        of  Percen        of  Percen        of  Percen        of
ar  claims    claims       t    claims       t    claims       t    claims  Percent
--  ------  --------  ------  --------  ------  --------  ------  --------  -------
19             8,635   71.3%     6,560   54.1%     5,240   43.3%     4,405    36.4%
 90 12,115     (176)   (0.9)     (161)   (1.0)     (147)   (1.0)     (137)    (1.0)
     (192)
19             9,495   70.9%     7,490   55.9%     6,075   45.4%
 91 13,395     (181)   (0.9)     (168)   (1.0)     (156)   (1.0)
     (194)
19            10,090   74.2%     7,930   58.4%
 92 13,590     (184)   (0.8)     (172)   (0.9)
     (195)
19            10,790   74.2%
 93 14,545     (187)   (0.8)
     (196)
===================================================================================
To            39,010   72.7%    21,980   56.2%    11,315   44.4%     4,405    36.4%
 t  53,645     (562)   (0.5)     (429)   (0.7)     (281)   (0.9)     (137)    (1.0)
 a   (534)
 l
 \
 a

-----------------------------------------------------------------------------------
Note:  Blank table cells indicate tax years after 1994 that were not
included in our analysis. 

\a Percentages are averages based on the following:

2 consecutive years--53,645,000 (534,000)claims made in tax years
1990, 1991, 1992, and 1993;
3 consecutive years--39,100,000 (437,000) claims made in tax years
1990, 1991, and 1992;
4 consecutive years--25,510,000 (324,000) claims made in tax years
1990 and 1991; and
5 consecutive years--12,115,000 (192,000) claims made in tax year
1990. 

Source:  GAO analysis of SOI and IMF data. 


   EIC CLAIMANTS' INCOME IN THE
   YEARS FOLLOWING A CLAIM
------------------------------------------------------- Appendix III:3

Tables III.6 to III.20 provide detailed data on the number of EIC
claimants and income levels in the years following a claim.  Table
III.6 shows averages for all claimants across all tax years.  Table
III.11 shows averages for phase-in range claimants across all tax
years, and table III.16 shows averages for phase-out range claimants
across all tax years.  Each of these tables is followed by four
parallel tables showing the supporting data by tax year. 



                                   Table III.6
                     
                        Reported Income of EIC Claimants,
                     Averages for 1 to 4 Years After a Claim,
                      Number and Percentage of Claimants by
                                   Income Range

                          (Number of claims in thousands
                     
                         Standard errors in parentheses)



               Number           Number           Number           Number
                   of  Percen       of  Percen       of  Percen       of  Percen
Income range   claims       t   claims       t   claims       t   claims       t
------------  -------  ------  -------  ------  -------  ------  -------  ------
Claimant did    4,720     8.8    5,040    12.9    4,010    15.7    2,140    17.7
 not file a     (147)   (0.3)    (172)   (0.4)    (157)   (0.6)    (100)   (0.8)
 return
AGI negative      135     0.3      125     0.3      105     0.4       45     0.4
 or missing      (27)   (0.1)     (26)   (0.1)     (25)   (0.1)     (15)   (0.1)
In a lower      6,205    11.6    4,790    12.3    2,965    11.6    1,265    10.4
 EIC range      (177)   (0.3)    (171)   (0.4)    (131)   (0.5)     (78)   (0.6)
In the same    29,365    54.7   17,485    44.7   10,160    39.8    4,385    36.2
 EIC range      (462)   (0.6)    (349)   (0.7)    (240)   (0.8)    (137)   (1.0)
In a higher     8,015    14.9    6,185    15.8    4,085    16.0    2,115    17.5
 EIC range      (204)   (0.3)    (191)   (0.4)    (154)   (0.6)     (99)   (0.8)
EIC limit to    1,645     3.1    1,390     3.6      820     3.2      375     3.1
 10% over        (91)   (0.2)     (87)   (0.2)     (67)   (0.3)     (43)   (0.4)
 limit
10 to 25%       1,375     2.6    1,340     3.4      965     3.8      415     3.4
 over EIC        (82)   (0.2)     (87)   (0.2)     (72)   (0.3)     (45)   (0.4)
 limit
25 to 50%       1,010     1.9    1,130     2.9      860     3.4      510     4.2
 over EIC        (70)   (0.1)     (78)   (0.2)     (67)   (0.3)     (50)   (0.4)
 limit
50% or more     1,175     2.2    1,615     4.1    1,540     6.0      865     7.1
 over the        (76)   (0.1)     (99)   (0.3)     (99)   (0.4)     (65)   (0.5)
 EIC limit
================================================================================
Total          53,645  100.0%   39,100  100.0%   25,510  100.0%   12,115  100.0%
                (534)            (437)            (324)            (192)
--------------------------------------------------------------------------------
Note:  Percentages may not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                                   Table III.7
                     
                       Reported Income of Tax Year 1990 EIC
                       Claimants for Tax Years 1991 Through
                     1994, Number and Percentage of Claimants
                                 by Income Range

                          (Number of claims in thousands
                     
                         Standard errors in parentheses)



               Number           Number           Number           Number
                   of  Percen       of  Percen       of  Percen       of  Percen
Income range   claims       t   claims       t   claims       t   claims       t
------------  -------  ------  -------  ------  -------  ------  -------  ------
Claimant did    1,050     8.7    1,620    13.4    1,910    15.8    2,140    17.7
 not file a      (71)   (0.6)     (88)   (0.7)     (95)   (0.7)    (100)   (0.8)
 return
AGI negative       45     0.4       45     0.4       50     0.4       45     0.4
 or missing      (15)   (0.1)     (15)   (0.1)     (16)   (0.1)     (15)   (0.1)
In a lower      1,695    14.0    1,620    13.4    1,760    14.5    1,265    10.4
 EIC range       (89)   (0.7)     (88)   (0.7)     (91)   (0.7)     (78)   (0.6)
In the same     6,630    54.7    5,460    45.1    4,770    39.4    4,385    36.2
 EIC range      (161)   (1.0)    (150)   (1.0)    (142)   (1.0)    (137)   (1.0)
In a higher     1,515    12.5    1,610    13.3    1,635    13.5    2,115    17.5
 EIC range       (85)   (0.7)     (87)   (0.7)     (88)   (0.7)     (99)   (0.8)
EIC limit to      400     3.3      515     4.3      435     3.6      375     3.1
 10% over        (44)   (0.4)     (50)   (0.4)     (46)   (0.4)     (43)   (0.4)
 limit
10 to 25%         280     2.3      400     3.3      470     3.9      415     3.4
 over EIC        (37)   (0.3)     (44)   (0.4)     (48)   (0.4)     (45)   (0.4)
 limit
25 to 50%         225     1.9      320     2.6      335     2.8      510     4.2
 over EIC        (33)   (0.3)     (40)   (0.3)     (41)   (0.3)     (50)   (0.4)
 limit
50% or more       275     2.3      525     4.3      750     6.2      865     7.1
 over the        (37)   (0.3)     (51)   (0.4)     (60)   (0.5)     (65)   (0.5)
 EIC limit
================================================================================
Total          12,115  100.0%   12,115  100.0%   12,115  100.0%   12,115  100.0%
                (192)            (192)            (192)            (192)
--------------------------------------------------------------------------------
Note:  Percentages may not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                              Table III.8
                
                  Reported Income of Tax Year 1991 EIC
                  Claimants for Tax Years 1992 Through
                1994, Number and Percentage of Claimants
                            by Income Range

                     (Number of claims in thousands
                
                    Standard errors in parentheses)



                      Number           Number           Number
                          of  Percen       of  Percen       of  Percen
Income range          claims       t   claims       t   claims       t
-------------------  -------  ------  -------  ------  -------  ------
Claimant did not       1,170     8.7    1,655    12.4    2,100    15.7
 file a return          (75)   (0.5)     (88)   (0.6)     (99)   (0.7)
AGI negative or           35     0.3       35     0.3       55     0.4
 missing                (13)   (0.1)     (13)   (0.1)     (17)   (0.1)
In a lower EIC         1,585    11.8    1,845    13.8    1,205     9.0
 range                  (87)   (0.6)     (93)   (0.7)     (76)   (0.6)
In the same EIC        7,405    55.3    6,010    44.9    5,390    40.2
 range                 (168)   (1.0)    (155)   (1.0)    (149)   (0.9)
In a higher EIC        1,780    13.3    1,910    14.3    2,450    18.3
 range                  (92)   (0.7)     (95)   (0.7)    (106)   (0.7)
EIC limit to 10%         505     3.8      515     3.8      385     2.9
 over limit             (50)   (0.4)     (50)   (0.4)     (44)   (0.3)
10 to 25% over EIC       315     2.4      465     3.5      495     3.7
 limit                  (39)   (0.3)     (48)   (0.4)     (49)   (0.4)
25 to 50% over EIC       260     1.9      360     2.7      525     3.9
 limit                  (36)   (0.3)     (42)   (0.3)     (51)   (0.4)
50% or more over         340     2.5      600     4.5      790     5.9
 the EIC limit          (41)   (0.3)     (54)   (0.4)     (62)   (0.5)
======================================================================
Total                 13,395  100.0%   13,395  100.0%   13,395  100.0%
                       (194)            (194)            (194)
----------------------------------------------------------------------
Note:  Percentages may not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                              Table III.9
                
                  Reported Income of Tax Year 1992 EIC
                 Claimants for Tax Years 1993 and 1994,
                 Number and Percentage of Claimants by
                              Income Range

                     (Number of claims in thousands
                
                    Standard errors in parentheses)



                                      Number            Number
                                          of  Percen        of  Percen
Income range                          claims       t    claims       t
----------------------------------  --------  ------  --------  ------
Claimant did not file a return         1,150     8.5     1,765    13.0
                                        (74)   (0.5)      (91)   (0.6)
AGI negative or missing                   30     0.2        45     0.3
                                        (12)   (0.1)      (15)   (0.1)
In a lower EIC range                   1,710    12.6     1,325     9.7
                                        (90)   (0.6)      (80)   (0.6)
In the same EIC range                  7,535    55.4     6,015    44.3
                                       (169)   (1.0)     (156)   (1.0)
In a higher EIC range                  1,830    13.5     2,665    19.6
                                        (93)   (0.7)     (110)   (0.8)
EIC limit to 10% over limit              400     2.9       360     2.6
                                        (44)   (0.3)      (42)   (0.3)
10 to 25% over EIC limit                 425     3.1       475     3.5
                                        (46)   (0.3)      (48)   (0.4)
25 to 50% over EIC limit                 250     1.8       450     3.3
                                        (35)   (0.3)      (47)   (0.3)
50% or more over the EIC limit           260     1.9       490     3.6
                                        (36)   (0.3)      (49)   (0.4)
======================================================================
Total                                 13,590  100.0%    13,590
                                       (195)             (195)  100.0%

----------------------------------------------------------------------
Note:  Percentages do not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                              Table III.10
                
                  Reported Income of Tax Year 1993 EIC
                Claimants for Tax Year 1994, Number and
                Percentage of Claimants by Income Range

                     (Number of claims in thousands
                
                    Standard errors in parentheses)


                                                    Number
                                                        of
Income range                                        claims     Percent
------------------------------------------------  --------  ----------
Claimant did not file a return                       1,350         9.3
                                                      (80)       (0.5)
AGI negative or missing                                 25         0.2
                                                      (11)       (0.1)
In a lower EIC range                                 1,215         8.4
                                                      (76)       (0.5)
In the same EIC range                                7,795        53.6
                                                     (171)       (0.9)
In a higher EIC range                                2,890        19.9
                                                     (114)       (0.7)
EIC limit to 10% over limit                            340         2.3
                                                      (41)       (0.3)
10 to 25% over EIC limit                               355         2.4
                                                      (42)       (0.3)
25 to 50% over EIC limit                               275         1.9
                                                      (37)       (0.3)
50% or more over the EIC limit                         300         2.1
                                                      (39)       (0.3)
======================================================================
Total                                               14,545      100.0%
                                                     (196)
----------------------------------------------------------------------
Note:  Percentages do not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                                   Table III.11
                     
                      Reported Income of EIC Phase-in Range
                       Claimants, Averages for 1 to 4 Years
                     After a Claim, Number and Percentage of
                            Claimants by Income Range

                          (Number of claims in thousands
                     
                         Standard errors in parentheses)



               Number           Number           Number           Number
                   of  Percen       of  Percen       of  Percen       of  Percen
Income range   claims       t   claims       t   claims       t   claims       t
------------  -------  ------  -------  ------  -------  ------  -------  ------
Claimant did    2,880    19.0    2,510    23.4    1,835    26.7      885    27.9
 not file a     (118)   (0.7)    (120)   (1.0)    (103)   (1.3)     (66)   (1.8)
 return
AGI negative       70     0.5       40     0.4       40     0.6       25     0.8
 or missing      (19)   (0.1)     (16)   (0.1)     (16)   (0.2)     (11)   (0.4)
EIC phase-      7,150    47.1   3,.875    36.1    2,120    30.8      810    25.5
 in range       (259)   (1.0)    (177)   (1.2)    (115)   (1.4)     (63)   (1.7)
EIC plateau     2,675    17.6    1,770    16.5      960    14.0      360    11.3
 range          (115)   (0.7)     (98)   (0.8)     (71)   (0.9)     (42)   (1.3)
EIC phase-      1,995    13.1    1,965    18.3    1,440    20.9      815    25.7
 out range       (98)   (0.6)    (101)   (0.9)     (87)   (1.1)     (63)   (1.7)
EIC limit to      115     0.8      100     0.9       40     0.6       35     1.1
 10% over        (24)   (0.2)     (22)   (0.2)     (14)   (0.2)     (13)   (0.4)
 limit
10 to 25%          70     0.5      125     1.2       85     1.2       35     1.1
 over EIC        (19)   (0.1)     (27)   (0.2)     (22)   (0.3)     (13)   (0.4)
 limit
25 to 50%          80     0.5      155     1.4      110     1.6       60     1.9
 over EIC        (20)   (0.1)     (28)   (0.3)     (23)   (0.3)     (17)   (0.5)
 limit
50% or more       160     1.1      205     1.9      245     3.6      150     4.7
 over the        (28)   (0.2)     (34)   (0.3)     (37)   (0.5)     (27)   (0.8)
 EIC limit
================================================================================
Total          15,195  100.0%   10,745  100.0%    6,875  100.0%    3,175  100.0%
                (337)            (269)            (199)            (119)
--------------------------------------------------------------------------------
Note:  Percentages may not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                                   Table III.12
                     
                       Reported Income of Tax Year 1990 EIC
                     Phase-in Range Claimants, for Tax Years
                     1991 Through 1994, Number and Percentage
                           of Claimants by Income Range

                          (Number of claims in thousands
                     
                         Standard errors in parentheses)



               Number           Number           Number           Number
                   of               of               of               of
              claiman  Percen  claiman  Percen  claiman  Percen  claiman  Percen
Income range       ts       t       ts       t       ts       t       ts       t
------------  -------  ------  -------  ------  -------  ------  -------  ------
Claimant did      635    20.0      775    24.4      865    27.2      885    27.9
 not file a      (56)   (1.6)     (61)   (1.7)     (65)   (1.8)     (66)   (1.8)
 return
AGI negative       30     0.9       20     0.6       20     0.6       25     0.8
 or missing      (12)   (0.4)     (10)   (0.3)     (10)   (0.3)     (11)   (0.4)
EIC phase-      1,495    47.1    1,160    36.5    1,060    33.4      810    25.5
 in range        (84)   (2.0)     (75)   (1.9)     (72)   (1.9)     (63)   (1.7)
EIC plateau       570    18.0      565    17.8      485    15.3      360    11.3
 range           (53)   (1.5)     (53)   (1.5)     (49)   (1.4)     (42)   (1.3)
EIC phase-        360    11.3      475    15.0      535    16.9      815    25.7
 out range       (42)   (1.3)     (48)   (1.4)     (51)   (1.5)     (63)   (1.7)
EIC limit to       25     0.8       35     1.1       25     0.8       35     1.1
 10% over        (11)   (0.4)     (13)   (0.4)     (11)   (0.4)     (13)   (0.4)
 limit
10 to 25%          15     0.5       40     1.3       20     0.6       35     1.1
 over EIC         (9)   (0.3)     (14)   (0.4)     (10)   (0.3)     (13)   (0.4)
 limit
25 to 50%          25     0.8       35     1.1       25     0.8       60     1.9
 over EIC        (11)   (0.4)     (13)   (0.4)     (11)   (0.4)     (17)   (0.5)
 limit
50% or more        20     0.6       70     2.2      140     4.4      150     4.7
 over the        (10)   (0.3)     (19)   (0.6)     (26)   (0.8)     (27)   (0.8)
 EIC limit
================================================================================
Total           3,175  100.0%    3,175  100.0%    3,175  100.0%    3,175  100.0%
                (119)            (119)            (119)            (119)
--------------------------------------------------------------------------------
Source:  GAO analysis of SOI and IMF data. 



                              Table III.13
                
                  Reported Income of Tax Year 1991 EIC
                 Phase-in Range Claimants for Tax Years
                1992 Through 1994, Number and Percentage
                      of Claimants by Income Range

                     (Number of claims in thousands
                
                    Standard errors in parentheses)



                         Number          Number          Number
                             of              of              of
                        claiman  Perce  claiman  Perce  claiman  Perce
Income range                 ts     nt       ts     nt       ts     nt
----------------------  -------  -----  -------  -----  -------  -----
Claimant did not file       695   18.8      850   23.0      970   26.2
 a return                  (58)  (1.4)     (64)  (1.5)     (69)  (1.6)
AGI negative or              15    0.4       10    0.3       20    0.5
 missing                    (9)  (0.2)      (7)  (0.2)     (10)  (0.3)
EIC phase-in range        1,725   46.6    1,425   38.5     1060   28.6
                           (90)  (1.8)     (82)  (1.8)     (72)  (1.7)
EIC plateau range           700   18.9      645   17.4      475   12.8
                           (58)  (1.4)     (56)  (1.4)     (48)  (1.2)
EIC phase-out range         450   12.2      590   15.9      905   24.5
                           (47)  (1.2)     (54)  (1.3)     (66)  (1.6)
EIC limit to 10% over        25    0.7       20    0.5       15    0.4
 limit                     (11)  (0.3)     (10)  (0.3)      (9)  (0.2)
10 to 25% over EIC           25    0.7       40    1.1       65    1.8
 limit                     (11)  (0.3)     (14)  (0.4)     (18)  (0.5)
25 to 50% over EIC           15    0.4       55    1.5       85    2.3
 limit                      (9)  (0.2)     (17)  (0.4)     (21)  (0.6)
50% or more over the         50    1.4       65    1.8      105    2.8
 EIC limit                 (16)  (0.4)     (18)  (0.5)     (23)  (0.6)
======================================================================
Total                     3,700  100.0    3,700  100.0    3,700  100.0
                          (128)      %    (128)      %    (128)      %
----------------------------------------------------------------------
Note:  Percentages may not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                              Table III.14
                
                  Reported Income of Tax Year 1992 EIC
                 Phase-in Range Claimants for Tax Years
                1993 and 1994, Number and Percentage of
                       Claimants by Income Range

                     (Number of claims in thousands
                
                    Standard errors in parentheses)



                                       Number           Number
                                           of  Percen       of  Percen
Income range                           claims       t   claims       t
------------------------------------  -------  ------  -------  ------
Claimant did not file a return            700    18.1      885    22.9
                                         (58)   (1.4)     (66)   (1.5)
AGI negative or missing                    15     0.4       10     0.3
                                          (9)   (0.2)      (7)   (0.2)
EIC phase-in range                      1,940    50.1    1,290    33.3
                                         (95)   (1.8)     (79)   (1.7)
EIC plateau range                         695    18.0      560    14.5
                                         (58)   (1.4)     (52)   (1.3)
EIC phase-out range                       420    10.9      900    23.3
                                         (46)   (1.1)     (66)   (1.5)
EIC limit to 10% over limit                25     0.6       45     1.2
                                         (11)   (0.3)     (15)   (0.4)
10 to 25% over EIC limit                   20     0.5       45     1.2
                                         (10)   (0.3)     (15)   (0.4)
25 to 50% over EIC limit                   15     0.4       65     1.7
                                          (9)   (0.2)     (18)   (0.5)
50% or more over the EIC limit             40     1.0       70     1.8
                                         (14)   (0.4)     (19)   (0.5)
======================================================================
Total                                   3,870  100.0%    3,870
                                        (130)            (130)  100.0%

----------------------------------------------------------------------
Note:  Percentages may not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                              Table III.15
                
                  Reported Income of Tax Year 1993 EIC
                 Phase-in Range Claimants for Tax Year
                1994, Number and Percentage of Claimants
                            by Income Range

                     (Number of claims in thousands
                
                    Standard errors in parentheses)


                                                 Number of
Income range                                        claims     Percent
----------------------------------------------  ----------  ----------
Claimant did not file a return                         850        19.1
                                                      (64)       (1.3)
AGI negative or missing                                 10         0.2
                                                       (7)       (0.2)
EIC phase-in range                                   1,990        44.7
                                                      (96)       (1.7)
EIC plateau range                                      710        16.0
                                                      (59)       (1.2)
EIC phase-out range                                    765        17.2
                                                      (61)       (1.3)
EIC limit to 10% over limit                             40         0.9
                                                      (14)       (0.3)
10 to 25% over EIC limit                                10         0.2
                                                       (7)       (0.2)
25 to 50% over EIC limit                                25         0.6
                                                      (11)       (0.3)
50% or more over the EIC limit                          50         1.1
                                                      (16)       (0.4)
======================================================================
Total                                                4,450      100.0%
                                                     (138)
----------------------------------------------------------------------
Source:  GAO analysis of SOI and IMF data. 



                                   Table III.16
                     
                     Reported Income for EIC Phase-Out Range
                       Claimants, Averages for 1 to 4 Years
                     After a Claim, Number and Percentage of
                            Claimants by Income Range

                          (Number of claims in thousands
                     
                         Standard errors in parentheses)



               Number           Number           Number           Number
                   of  Percen       of  Percen       of  Percen       of  Percen
Income range   claims       t   claims       t   claims       t   claims       t
------------  -------  ------  -------  ------  -------  ------  -------  ------
Claimant did      935     3.4    1,455     7.1    1,310     9.7      780    12.0
 not file a      (68)   (0.2)     (90)   (0.4)     (88)   (0.6)     (62)   (0.9)
 return
AGI negative       45     0.2       40     0.2       55     0.4       20     0.3
 or missing      (17)   (0.1)     (14)   (0.1)     (17)   (0.1)     (10)   (0.2)
EIC phase-      1,845     6.7    1,665     8.2    1,165     8.6      580     8.9
 in range        (95)   (0.3)     (96)   (0.5)     (81)   (0.6)     (53)   (0.8)
EIC plateau     2,125     7.8    1,590     7.8      925     6.8      315     4.8
 range          (102)   (0.4)     (94)   (0.4)     (70)   (0.5)     (39)   (0.6)
EIC phase-     18,130    66.1   11,335    55.6    6,880    50.8    3,190    49.1
 out range      (415)   (0.7)    (308)   (0.9)    (210)   (1.1)    (120)   (1.4)
EIC limit to    1,430     5.2    1,190     5.8      705     5.2      300     4.6
 10% over        (85)   (0.3)     (81)   (0.4)     (62)   (0.4)     (39)   (0.6)
 limit
10 to 25%       1,200     4.4    1,100     5.4      735     5.4      335     5.2
 over EIC        (77)   (0.3)     (78)   (0.4)     (62)   (0.4)     (41)   (0.6)
 limit
25 to 50%         850     3.1      860     4.2      700     5.2      395     6.1
 over EIC        (64)   (0.2)     (68)   (0.3)     (60)   (0.4)     (44)   (0.7)
 limit
50% or more       855     3.1    1,150     5.6    1,065     7.9      580     8.9
 over the        (64)   (0.2)     (82)   (0.4)     (81)   (0.6)     (53)   (0.8)
 EIC limit
================================================================================
Total          27,415  100.0%   20,385  100.0%   13,540  100.0%    6,495  100.0%
                (457)            (369)            (271)            (160)
--------------------------------------------------------------------------------
Note:  Percentages may not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                                   Table III.17
                     
                       Reported Income of Tax Year 1990 EIC
                     Phase-Out Range Claimants for Tax Years
                     1991 Through 1994, Number and Percentage
                           of Claimants by Income Range

                          (Number of claims in thousands
                     
                         Standard errors in parentheses)



               Number           Number           Number           Number
                   of  Percen       of  Percen       of  Percen       of  Percen
Income range   claims       t   claims       t   claims       t   claims       t
------------  -------  ------  -------  ------  -------  ------  -------  ------
Claimant did      205     3.2      495     7.6      640     9.9      780    12.0
 not file a      (32)   (0.5)     (49)   (0.7)     (56)   (0.8)     (62)   (0.9)
 return
AGI negative        5     0.1        5     0.1       25     0.4       20     0.3
 or missing       (5)   (0.1)      (5)   (0.1)     (11)   (0.2)     (10)   (0.2)
EIC phase-        510     7.9      575     8.9      670    10.3      580     8.9
 in range        (50)   (0.7)     (53)   (0.8)     (57)   (0.8)     (53)   (0.8)
EIC plateau       625     9.6      590     9.1      605     9.3      315     4.8
 range           (55)   (0.8)     (54)   (0.8)     (54)   (0.8)     (39)   (0.6)
EIC phase-      4,175    64.3    3,465    53.3    3,025    46.6    3,190    49.1
 out range      (134)   (1.3)    (124)   (1.4)    (117)   (1.4)    (120)   (1.4)
EIC limit to      350     5.4      435     6.7      365     5.6      300     4.6
 10% over        (42)   (0.6)     (46)   (0.7)     (42)   (0.6)     (39)   (0.6)
 limit
10 to 25%         250     3.8      330     5.1      390     6.0      335     5.2
 over EIC        (35)   (0.5)     (40)   (0.6)     (44)   (0.7)     (41)   (0.6)
 limit
25 to 50%         180     2.8      255     3.9      295     4.5      395     6.1
 over EIC        (30)   (0.5)     (36)   (0.5)     (38)   (0.6)     (44)   (0.7)
 limit
50% or more       195     3.0      345     5.3      480     7.4      580     8.9
 over the        (31)   (0.5)     (41)   (0.6)     (49)   (0.7)     (53)   (0.8)
 EIC limit
================================================================================
Total           6,495  100.0%    6,495  100.0%    6,495  100.0%    6,495  100.0%
                (160)            (160)            (160)            (160)
--------------------------------------------------------------------------------
Note:  Percentages may not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                              Table III.18
                
                  Reported Income of Tax Year 1991 EIC
                Phase-Out Range Claimants for Tax Years
                1992 Through 1994, Number and Percentage
                      of Claimants by Income Range

                     (Number of claims in thousands
                
                    Standard errors in parentheses)



                         Number          Number          Number
                             of  Perce       of  Perce       of  Perce
Income range             claims     nt   claims     nt   claims     nt
----------------------  -------  -----  -------  -----  -------  -----
Claimant did not file       255    3.6      485    6.9      670    9.5
 a return                  (36)  (0.5)     (49)  (0.7)     (57)  (0.8)
AGI negative or              20    0.3       10    0.1       30    0.4
 missing                   (10)  (0.1)      (7)  (0.1)     (12)  (0.2)
EIC phase-in range          480    6.8      590    8.4      495    7.0
                           (49)  (0.7)     (54)  (0.7)     (49)  (0.7)
EIC plateau range           635    9.0      675    9.6      320    4.5
                           (56)  (0.8)     (57)  (0.8)     (40)  (0.6)
EIC phase-out range       4,470   63.4    3,720   52.8    3,855   54.7
                          (138)  (1.3)    (128)  (1.3)    (130)  (1.3)
EIC limit to 10% over       470    6.7      465    6.6      340    4.8
 limit                     (48)  (0.7)     (48)  (0.7)     (41)  (0.6)
10 to 25% over EIC          260    3.7      375    5.3      345    4.9
 limit                     (36)  (0.5)     (43)  (0.6)     (41)  (0.6)
25 to 50% over EIC          215    3.1      265    3.8      405    5.7
 limit                     (33)  (0.5)     (36)  (0.5)     (45)  (0.6)
50% or more over the        240    3.4      460    6.5      585    8.3
 EIC limit                 (35)  (0.5)     (48)  (0.7)     (54)  (0.7)
======================================================================
Total                     7,045  100.0    7,045  100.0    7,045  100.0
                          (165)      %    (165)      %    (165)      %
----------------------------------------------------------------------
Note:  Percentages may not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                              Table III.19
                
                  Reported Income of Tax Year 1992 EIC
                Phase-Out Range Claimants for Tax Years
                1993 and 1994, Number and Percentage of
                       Claimants by Income Range

                     (Number of claims in thousands
                
                    Standard errors in parentheses)



                                       Number           Number
                                           of  Percen       of  Percen
Income range                           claims       t   claims       t
------------------------------------  -------  ------  -------  ------
Claimant did not file a return            215     3.1      475     6.9
                                         (33)   (0.5)     (48)   (0.7)
AGI negative or missing                    10     0.1       25     0.4
                                          (7)   (0.1)     (11)   (0.2)
EIC phase-in range                        460     6.7      500     7.3
                                         (48)   (0.7)     (50)   (0.7)
EIC plateau range                         595     8.7      325     4.7
                                         (54)   (0.8)     (40)   (0.6)
EIC phase-out range                     4,445    64.9    4,150    60.6
                                        (138)   (1.3)    (134)   (1.3)
EIC limit to 10% over limit               340     5.0      290     4.2
                                         (41)   (0.6)     (38)   (0.5)
10 to 25% over EIC limit                  355     5.2      395     5.8
                                         (42)   (0.6)     (44)   (0.6)
25 to 50% over EIC limit                  220     3.2      340     5.0
                                         (33)   (0.5)     (41)   (0.6)
50% or more over the EIC limit            205     3.0      345     5.0
                                         (32)   (0.5)     (41)   (0.6)
======================================================================
Total                                   6,845            6,845
                                        (163)  100.0%    (163)  100.0%

----------------------------------------------------------------------
Note:  Percentages do not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 



                              Table III.20
                
                  Reported Income of Tax Year 1993 EIC
                 Phase-Out Range Claimants for Tax Year
                1994, Number and Percentage of Claimants
                            by Income Range

                     (Number of claims in thousands
                
                    Standard errors in parentheses)


                                                 Number of
Income range                                        claims     Percent
----------------------------------------------  ----------  ----------
Claimant did not file a return                         260         3.7
                                                      (36)       (0.5)
AGI negative or missing                                 10         0.1
                                                       (7)       (0.1)
EIC phase-in range                                     395         5.6
                                                      (44)       (0.6)
EIC plateau range                                      270         3.8
                                                      (37)       (0.5)
EIC phase-out range                                  5,040        71.7
                                                     (145)       (1.2)
EIC limit to 10% over limit                            270         3.8
                                                      (37)       (0.5)
10 to 25% over EIC limit                               335         4.8
                                                      (41)       (0.6)
25 to 50% over EIC limit                               235         3.3
                                                      (34)       (0.5)
50% or more over the EIC limit                         215         3.1
                                                      (33)       (0.5)
======================================================================
Total                                                7,030      100.0%
                                                     (165)
----------------------------------------------------------------------
Note:  Percentages do not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 


   TAXPAYERS WHO STOPPED CLAIMING
   THE EIC
------------------------------------------------------- Appendix III:4

Tables III.21 to III.23 provide data on taxpayers who at some point
stopped claiming the EIC.  Table III.21 provides averages of the
proportion of taxpayers who stopped claiming the EIC and filed a
return, by income range, along with the proportion who stopped
claiming the credit and did not file a return in the year off the
EIC.  Table III.22 provides additional data on changes in filing
status for those who filed a return in the year off the EIC.  Table
III.23 includes specifics on the type of filing status change, by
income range. 



                              Table III.21
                
                 EIC Claimants' Reported Income in the
                 First and Second Consecutive Years off
                the Credit, Averages for Tax Years 1991
                 Through 1994, Number and Percentage of
                       Departures by Income Range

                 (Number of departures from the EIC in
                               thousands
                
                    Standard errors in parentheses)


                                       Number           Number
                                           of               of
                                      departu  Percen  departu  Percen
Income range                              res       t      res       t
------------------------------------  -------  ------  -------  ------
AGI negative or missing                   135     0.9       75     0.9
                                         (27)   (0.2)     (19)   (0.2)
In the EIC range                        4,575    31.3    2,160    25.5
                                        (143)   (0.9)    (100)   (1.1)
Up to 10% over the EIC limit            1,645    11.2      620     7.3
                                         (91)   (0.6)     (55)   (0.6)
10 to 25% over the EIC limit            1,375     9.4      750     8.9
                                         (82)   (0.5)     (60)   (0.7)
25 to 50% over the EIC limit            1,010     6.9      755     8.9
                                         (70)   (0.5)     (61)   (0.7)
50% or more over the EIC limit          1,175     8.0    1,155    13.7
                                         (76)   (0.5)     (75)   (0.8)
Did not file a return                   4,720    32.3    2,940    34.8
                                        (147)   (0.9)    (115)   (1.2)
======================================================================
Total Departures\a                     14,635  100.0%    8,455  100.0%
                                        (214)            (175)
----------------------------------------------------------------------
\a Of the 14,635,000 departures from the credit 1 year after a claim,
3,480,000 were from tax year 1990 to 1991, 3,900,000 were from tax
year 1991 to 1992, 3,500,000 were from tax year 1992 to 1993 and
3,755,000 were from tax year 1993 to 1994.  Of the 8,455,000
2-consecutive year departures from the EIC, 2,820,000 were from tax
year 1990 to 1992, 2,990,000 were from tax year 1991 to 1993 and
2,645,000 were from tax year 1992 to 1994. 

Source:  GAO analysis of SOI and IMF data



                                                                                     Table III.22
                                                                       
                                                                         EIC Claimants Reporting the Same or
                                                                       Different Filing Status in the First and
                                                                       Second Consecutive Years off the Credit,
                                                                        by Income Range, Averages for Tax Year
                                                                        1991 Through 1994 Departures From the
                                                                                        Credit

                                                                            (Number of claims in thousands
                                                                       
                                                                           Standard errors in parentheses)



                    Number of               Number of               Number of                   Nuumber of                      Number of                    Number of
Income range       departures     Percent  departures     Percent  departures     Percent       departures       Percent       departures       Percent     departures       Percent
-----------------  ----------  ----------  ----------  ----------  ==========  ==========  ---------------  ------------  ---------------  ------------  =============  ============
AGI negative or           120         1.2          15         0.2         135         1.4               60           1.1               15           0.3             75           1.4
 missing                 (25)       (0.3)         (9)       (0.1)        (27)       (0.3)             (17)         (0.3)              (9)         (0.2)           (19)         (0.3)
In the EIC range        2,165        21.8       2,410        24.3       4,575        46.1              850          15.4            1,310          23.8          2,160          39.2
                        (102)       (0.9)       (106)       (1.0)       (143)       (1.1)             (64)         (1.1)             (79)         (1.3)          (100)         (1.5)
Up to 10% over          1,345        13.6         300         3.0       1,645        16.6              485           8.8              135           2.4            620          11.2
 the EIC limit           (83)       (0.8)        (39)       (0.4)        (91)       (0.8)             (49)         (0.9)             (26)         (0.5)           (55)         (1.0)
10 to 25% over          1,165        11.7         210         2.1       1,375        13.9              625          11.3              125           2.3            750          13.6
 the EIC limit           (76)       (0.7)        (32)       (0.3)        (82)       (0.8)             (55)         (1.0)             (25)         (0.4)           (60)         (1.0)
25 to 50% over            780         7.9         230         2.3       1,010        10.2              510           9.2              245           4.4            755          13.7
 the EIC limit           (62)       (0.6)        (34)       (0.3)        (70)       (0.7)             (50)         (0.9)             (35)         (0.6)           (61)         (1.0)
50% or more over          585         5.9         590         6.0       1,175        11.9              645          11.7              510           9.2          1,155          20.9
 the EIC limit           (54)       (0.5)        (54)       (0.5)        (76)       (0.7)             (56)         (1.0)             (50)         (0.9)           (75)         (1.2)
====================================================================================================================================================================================
Total                   6,160       62.1%       3,755       37.9%       9,915      100.0%            3,175         57.6%            2,340         42.4%          5,515        100.0%
                        (167)       (1.1)       (130)       (1.1)       (195)                        (119)         (1.5)            (104)         (1.5)          (150)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source:  GAO analysis of SOI and IMF data. 



                                                                      Table III.23
                                                        
                                                         Type of Filing Status Change From the
                                                         Year of an EIC Claim to the First Year
                                                         off the EIC, by Income Range, Averages
                                                            for Tax Years 1990 Through 1994

                                                           (Number of taxpayers in thousands
                                                        
                                                            Standard errors in parentheses)



AGI reported in    Filing status in
the first year     the year of the        Number                Number                 Number                 Number                  Number
off the EIC        EIC claim           of claims   Percent   of claims    Percent   of claims    Percent   of claims     Percent   of claims    Percent
-----------------  -----------------  ----------  --------  ----------  ---------  ----------  ---------  ----------  ----------  ----------  ---------
Below the EIC      Head of                 1,585      65.4         165        6.8         165        6.8                               1,915       79.0
 limit              household               (87)     (2.2)        (29)      (1.1)        (29)      (1.1)                                (95)      (1.9)

                   Married filing            190       7.8                                215        8.9          35         1.4         440       18.1
                    jointly                 (31)     (1.2)                               (33)      (1.3)        (13)       (0.5)        (47)      (1.8)
                   Single                                           15        0.6           5        0.2          20         0.8          40        1.6
                                                                   (9)      (0.4)         (5)      (0.2)        (10)       (0.4)        (14)      (0.6)
                   Qualified                  15       0.6           0        0.0           0        0.0          15         0.6          30        1.2
                    widow(er)                (9)     (0.4)                                                       (9)       (0.4)        (12)      (0.5)
                   Total                   1,790      73.8         180        7.4         385       15.9          70         2.9       2,425     100.0%
                                            (92)     (2.0)        (30)      (1.2)        (44)      (1.7)        (19)       (0.8)       (107)
Above the EIC      Head of                   210      15.8         960       72.2          25        1.9                               1,195       89.8
 limit              household               (32)     (2.2)        (69)      (2.7)        (11)      (0.8)                                (76)      (1.9)

                   Married filing             10       0.8                                 10        0.8          20         1.5          40        3.0
                    jointly                  (7)     (0.5)                                (7)      (0.5)        (10)       (0.7)        (14)      (1.0)
                   Single                                           70        5.3           0        0.0          20         1.5          90        6.8
                                                                  (19)      (1.4)                               (10)       (0.7)        (21)      (1.5)
                   Qualified                   0       0.0           0        0.0           0        0.0           5         0.4           5        0.4
                    widow(er)                                                                                    (5)       (0.4)         (5)      (0.4)
                   Total                     220      16.5       1,030       77.4          35        2.6          45         3.4       1,330     100.0%
                                            (33)     (2.3)        (71)      (2.6)        (13)      (1.0)        (15)       (1.1)        (80)
All claims with a  Head of household       1,795      47.8       1,125       30.0         190        5.1                               3,110       82.8
 filing status                              (92)     (1.8)        (74)      (1.7)        (31)      (0.8)                               (119)      (1.4)
 change
                   Married filing            200       5.3                                225        6.0          55         1.5         480       12.8
                    jointly                 (32)     (0.8)                               (34)      (0.9)        (17)       (0.4)        (49)      (1.2)
                   Single                                           85        2.3           5        0.1          40         1.1         130        3.5
                                                                  (21)      (0.5)         (5)      (0.1)        (14)       (0.4)        (25)      (0.7)
                   Qualified                  15       0.4           0        0.0           0        0.0          20         0.5          35        0.9
                    widow(er)                (9)     (0.2)                                                      (10)       (0.3)        (13)      (0.4)
                   Total                   2,010      53.5       1,210       32.2         420       11.2         115         3.1       3,755     100.0%
                                            (97)     (1.8)        (77)      (1.7)        (46)      (1.2)        (24)       (0.6)       (130)
-------------------------------------------------------------------------------------------------------------------------------------------------------
Note:  Percentages may not add to total due to rounding. 

Source:  GAO analysis of SOI and IMF data. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

GENERAL GOVERNMENT DIVISION

David Attianese, Assistant Director
Patricia McGuire, Assistant Director, Information Services
Deborah Parker Junod, Evaluator-in-Charge
Joanne Parker, Senior Social Science Analyst
Mary Phillips, Senior Evaluator
James Fields, Senior Social Science Analyst
Kim Wheeler, Graphics Specialist





RELATED GAO PRODUCTS
============================================================ Chapter 0

Earned Income Credit:  IRS' 1995 Controls Stopped Some Noncompliance,
But Not Without Problems (GAO/GGD-96-172, Sept.  18, 1996). 

Earned Income Credit:  Profile of Tax Year 1994 Credit Recipients
(GAO/GGD-96-122BR, June 13, 1996). 

Earned Income Credit:  Noncompliance and Potential Eligibility
Revisions (GAO/T-GGD-95-179, June 8, 1995). 

Earned Income Credit:  Targeting to the Working Poor
(GAO/GGD-95-122BR, Mar.  31, 1995). 

Earned Income Credit:  Targeting to the Working Poor
(GAO/T-GGD-95-136, Apr.  4, 1995). 

Tax Administration:  Earned Income Credit--Data on Noncompliance and
Illegal Alien Recipients (GAO/GGD-95-27, Oct.  25, 1994). 

Tax Policy:  Earned Income Tax Credit:  Design and Administration
Could Be Improved (GAO/GGD-93-145, Sept.  24, 1993). 


*** End of document. ***