Questions for the Tax Lady: August 23rd, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Is it true that the child tax credit would be reduced if the Bush tax cuts expire?

Yes. The Economic Growth and Tax Relief Reconciliation Act passed in 2001 doubled the child tax credit form $500 to $1,000. It is set to expire at the end of the year, and unless extended by Congress, would revert back to $500 in 2011.

Question #2: What is the difference between an Individual Taxpayer Identification Number (ITIN) and a Social Security Number (SSN)

Taxpayer identification numbers are assigned to individuals that do not qualify for a Social Security number but may need to file a tax return. ITINs are often given to resident aliens living in the United States. While a taxpayer may use his or her social security card as proof to work in the United States, an ITIN does not serve as verification of one’s ability to work in the United States.

Millions of Tax Returns Filed Using Other People’s SS Numbers

In 2007 1.2 million people filed tax returns using someone else’s Social Security Number, according to the Treasury Inspector General for Tax Administration (TIGTA). During the investigation, TIGTA discovered that the IRS can’t identify cases of identity theft when people use Individual Taxpayer Identification Numbers (assigned to people who work and pay taxes but are not entitled to Social Security benefits) to file tax returns, and use someone else’s name and Social Security Number to work.

The issue was discovered when people using false Social Security Numbers for work had their wages garnished to satisfy tax debts of the legitimate Social Security Numbers owners!

TIGTA recommended that the IRS alert taxpayers their identity may have been compromised, match ITIN returns with their related reporting returns, such as Wage and Tax Statements (Form W-2), and most importantly, update their guidelines to handle collection issues associated with ITINs. The IRS was said to “generally agree” with TIGTA's recommendations.

Review the full TIGTA report and IRS response here.