Improper earnings information can affect claims for Social Security Disability (SSD) or Supplemental Security Income (SSI). Your record may contain improper earnings information as a result of Earned Income Tax Credit (EITC) fraud, identity theft, mistake, or misrepresentation. This article will explain how these issues arise, why they are important to your disability benefit claim, and what you can do to fix them.
Earned Income Tax Credit
The Earned Income Tax Credit (EIC or EITC) is available to working people who have low to moderate income. It reduces taxes owed and can also result in a tax refund. The EITC is used properly when the information provided to the Internal Revenue Service (IRS) is both truthful and accurate. If properly filed, people will receive the benefit. Unfortunately, like any government assistance program, the EITC has been used improperly. Fraudulent applications for the EITC can be made by individuals themselves, tax preparers, or through identity theft.
Individual Misrepresentation: A person who lies or causes another to lie about income for EITC benefits can be found guilty of fraud and subject to penalties, fines, interest, and/or prison time. Misrepresenting facts on an application for ETIC benefits could negatively affect a disability benefit claim because the IRS will report earnings to the SSA when the person claims to be unable to work.
Tax Preparer Fraud: Sometimes, tax preparers file for EITC benefits fraudulently by manipulating taxpayer income figures. These preparers may promise a higher refund by applying for the EITC with false information while charging inflated fees. Once the IRS detects the fraudulent return, you are typically held responsible for any additional taxes, interest, possible penalties, and/or criminal charges, not the tax preparer. This can happen even when you did not know about the fraud.
Identity theft: Sometimes a person may apply for EITC benefits using another’s personal information without permission.
How can I prevent illegitimate use of EITC?
You can prevent illegitimate use of the EITC by providing the IRS with truthful and accurate information. If you have accidently or improperly filed for EITC benefits, fix the mistake immediately with the IRS.
Choosing a reputable return preparer can help prevent problems. The IRS provides free tips on choosing one on their website. The IRS has procedures for finding and prosecuting abusive return preparers. If the tax preparer is found guilty, the IRS can reverse entries on your account that resulted from the fraudulent return filed by the preparer and might not pursue collection action against you. Taxpayers who knowingly use a tax preparer who is filing false returns can be liable. Tax evasion is a felony punishable up to five years imprisonment and a $100,000 fine. Tax preparers are also expected to comply with due diligence requirements like verifying that the information they submit is accurate. If the due diligence requirements are not met, preparers are subject to a $500 penalty for each time a requirement is not met.
How does illegitimate use of EITC affect SSD and SSI claims?
Before paying disability benefits, the Social Security Administration (SSA) routinely checks with the Internal Revenue Service (IRS) on a claimant’s reported income as stated on income tax returns. Any significant income on a tax return during a claimed period of disability is a red flag. SSA can also compare a person’s work history reports with their income tax records. SSA Administrative Law Judges (ALJs) may ask for copies of tax returns and compare signatures, particularly if a person claims identity theft.
Illegitimate use of the EITC affects a claimant’s credibility. SSA may not believe a person who lied to the IRS about their income. New SSA rules sometimes require Administrative Law Judges to refer suspected fraud for investigation. As stated above, filing false income tax information can result in tax penalties and even criminal liability. Too much work income can sometimes result in an SSD disability claim being denied, because SSA will assume you can do substantial work. After certain income exclusions, reported work income can also reduce or eliminate SSI disability benefits.
What should I do if there has been illegitimate use of the EITC during my period of claimed disability?
If you have misrepresented a fact yourself, you should correct the mistake immediately with the IRS and SSA. That involves filing an Amended Tax Return with the IRS. Amended U.S. Individual Income Tax Return Form 1040X (from IRS.gov). Note that an amended tax return cannot be filed electronically. If you received an EITC refund, you will need to make arrangements with the IRS to pay it back, along with any applicable interest and penalties. Your state tax liability may be affected by changes made to the federal tax return, so you must also contact your state tax agency.
After amending tax returns, you can request correction of your earnings record by filing form SSA-7008. Note that an earnings record can be corrected at any time up to three years, three months, and 15 days after the year in which your wages were paid or self-employment income was derived. If the time limit has run out, the earnings record for a year may be revised if, before it ran out, you applied for benefits or requested a revision of your earnings record for that year.
If a tax preparer fraudulently altered a tax return without your knowledge, you can file a complaint for Return Preparer Fraud. Two documents are required to file the complaint: Form 14157 Return Preparer Complaint (from IRS.gov) and Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit (from IRS.gov). You may provide other documents to support your claim. Also, you would need to file an amended tax return with the IRS and a correction of earnings record to SSA. As a victim of return preparer fraud, you may also seek to have a lawsuit brought against a tax preparer. A tax preparer who is found guilty may be subject to fines. See Get Free Tax Prep Help (from IRS.gov) for free tax resources that are available for people with low incomes. After the error has been fixed, the disability claim should be more likely to succeed.
Common Identity Theft Issues
Identity thieves steal other people’s personal information for a variety of reasons. For example, an undocumented worker might use another person’s Social Security number in order to qualify for a job. With the right information, an identity thief can file a false tax return and get a refund on your record. They can apply for credit in your name, drain bank accounts, and do other harmful things. If any of these result in earnings on your record, they can affect your disability claim.
Examples of Identity Theft Problems in Disability Claims and How to Deal with Them
In cases where a third party commits ID theft affecting your earnings, such as a working person using your Social Security number or a third party using your stolen ID to file fraudulent tax returns to get refunds such as the EITC, you should file a police report with the local police department. You can place a fraud alert on your credit report by contacting the nationwide credit reporting companies Equifax 1-800- 525-6285, Experian 1-888-397-3742, and Trans Union 1-800-916-8800. You can file a complaint with the Federal Trade Commission (FTC) ID Theft Hotline 1-877-438-4338. You can contact any banks or other financial institutions to close any accounts that are unused, have been tampered with, or opened without permission.
You should report the ID theft to the IRS and SSA. You can complete the IRS Identity Theft Affidavit Form 14039 (from IRS.gov). You can use SSA Form 7008 to change your earnings record. If you have been denied Social Security Disability benefits due to an error, you should promptly correct the mistake. You can also submit a statement disclaiming earnings in some situations. New Jersey law allows ID theft victims to seek restitution including costs incurred in clearing credit history, credit rating, and in satisfying any debt, lien, or other obligation of the victim arising as a result of the actions of the ID thief.
You can check your official SSA Earnings Statement for incorrect information. If you have online access, you can view your Earnings Benefit Statement by creating an account at the Social Security website. Otherwise, you can request a copy at your local Social Security office or call Social Security’s helpline at 1-800-772-1213 for more information.
This information last reviewed: Dec 22, 2014