Lack of awareness, fear of mistakes and penalties, and the cost of filing are preventing many families from claiming millions of dollars in tax credits, according to a new study.

The report, released Tuesday by the New Practice Lab at New America, surveyed over 5,000 respondents to learn why so many households fail to claim the Child Tax Credit, the Earned Income Tax Credit and other tax breaks that could help them.

Awareness gaps were a big barrier. Among households earning under $10,000 annually, 36% were unaware of any tax credits, more than double the rate among households earning over $150,000 (17%).

Misunderstanding their eligibility also kept many taxpayers from filing their annual returns. One-third of lower-income households earning under $26,000 who hadn’t filed taxes in the past three years said they didn’t file because they believed their income was too low. But within this group, 20% had earned income and 37% had children — factors that probably would have made them eligible for claiming the tax credits if they had filed.

Fear of making a mistake and being penalized for it was the most common barrier to filing a return, particularly among lower-income households. This fear had major consequences, as 61% of respondents who felt this way hadn’t filed tax returns in the past three years, and even when they did file, they were more likely to miss out on tax credits.

Filing a tax return can be expensive for families, forcing them to forgo other expenses in order to file. Even though 36% of survey respondents cited cost as a barrier, most had used professional tax help at some point due to concerns around navigating the process alone.

Accessing the right documents poses a challenge for taxpayers. Half of the survey respondents said they had trouble gathering the documents they needed to file their taxes, and 80% of those who faced documentation issues struggled with more than one type of document.

Most low-income households are already connected with other types of government support services, but tax credits feel like a separate disconnected area. The survey found 84% of households who had not filed taxes at all or irregularly in the past three years had participated in at least one other public support service during that same time period. 

“Accessing tax credits is often overwhelming and costly, creating unnecessary barriers for the families who need this support the most,” said Devyani Singh, lead author of the report, in a statement. “Tax credits can be a critical lifeline for families that are struggling financially, and it’s up to state Departments of Revenue to look at the process as a delivery issue. There’s no one-size-fits-all solution to increasing tax credit uptake; improving access requires a multipronged strategy combining personalized outreach, streamlined systems, and policies that meet families where they are.”

The report pointed out that such  factors are important for government agencies to consider, especially as the White House and some lawmakers in Congress express interest in increasing the amount families can get from the Child Tax Credit. However, the proposed shuttering of free tax-filing programs like Direct File, which New America was involved in studying, will make it harder for families to access these benefits. The tax reconciliation bill would also restrict access to claiming the Child Tax Credit to families with Social Security numbers as a way to deter immigrants from accessing such benefits.

The Senate Finance Committee questioned Billy Young, President Trump’s nominee for Internal Revenue Service commissioner, about his plans for the beleaguered agency and promotion of dubious “tribal tax credits” and Employee Retention Tax Credits during a long-awaited confirmation hearing Tuesday after a series of acting commissioners temporarily held the role.

Trump announced in December he planned to name Long, a former Republican congressman from Missouri, as the next IRS commissioner, even though then-commissioner Danny Werfel’s term wasn’t scheduled to end until November 2027. Since then, the role has been filled by four acting commissioners who have faced pressures to accept drastic staff cuts at the agency and share taxpayer data with immigration authorities.

Long insisted during the confirmation hearing that he would defend the integrity of the IRS and maintain an open door policy, emulating the example of former commissioner Charles Rossotti, who served from 1997 to 2002.

“If confirmed, I will implement a comprehensive plan aimed at enhancing the IRS, but also one that develops a new culture at the agency,” he said in his opening statement. “I am eager to implement the necessary changes to maximize our effectiveness, while also remaining transparent with both Congress and taxpayers. It is important to also recognize the dedicated professionals currently at the IRS whose hard work too often goes unnoticed. It is my pledge that we will invest in retaining skilled members of the team. This does not mean a bloated agency, but an efficient one where employees have the tools they need to succeed.”

Committee chairman Mike Crapo, R-Idaho, expects to see changes at the agency. “Congressman Long is very clear that he will make himself available to all IRS employees, no matter their seniority,” Crapo said in his opening statement. “Moreover, he wants to implement a top-down culture change at the agency. This sea change will benefit American taxpayers, who too often view the IRS as foe, rather than friend. Congressman Long knows, from years of experience in the House, that to be a successful Commissioner, he must be a valuable partner in Congress’ efforts to ensure that new tax legislation is implemented and administered as Congress intends it to be.  I am also confident that he will be fully transparent and responsive to Congress and the American people.”

Sen. Ron Wyden, D-Oregon, the top Democrat on the committee, questioned Long about his promotion of “tribal tax credits” and the fraud-plagued ERTC. “Most of Congressman Long’s experience with tax issues came after he left Congress, when he dove headlong into the tax scam industry,” he said in his opening statement. “Cashing in on the credibility of his election certificates, he raked in referral fees steering clients to firms that sold faked tax shelters and pushing small businesses to unknowingly commit tax fraud.”

Wyden asked Long about the $65,000 he earned from referring friends to tax promoters who claimed they had acquired income tax credits issued to a Native American tribe and then sold the tax credits to investors. “There’s a problem. The IRS said in March that the credits do not exist. They’re fake. They are a scam. Now you’re asking to be put in charge of the IRS, and the IRS confirms that these aren’t real. Tell the committee, do you believe these so-called tribal tax credits actually exist?”

Long insisted his only involvement with the credit was to connect interested friends and offer to put them on a Zoom call with someone, but he was not on the Zoom calls himself. Wyden pressed him on whether the tax credits actually exist.

“I think the jury’s still out on that,” Long admitted. “I know since 2022 they’ve been accepting them, so now they claim that they’re not. I think that all this is going to play out, and I want to have it investigated, just as you do. I know you’re very interested in this subject. I am too.”

Wyden also asked about $165,000 in campaign donations that went to Long’s unsuccessful 2022 Senate campaign after Trump named him as the next IRS commissioner. Long insisted he had followed guidelines from the Federal Election Commission. “You know as well as I do, anytime you’re dealing with the FEC, you have to follow FEC guidelines, and that’s exactly what I did all the way,” he said.

Wyden then asked him about his work with promoters of the Employee Retention Tax Credit. “You stated on a YouTube video that everybody qualifies for the Employee Retention Tax Credit, and you urge listeners to ignore CPAs that said they didn’t qualify. Do you really think everybody qualifies?”

“If you listen to that video, I hate to correct you, but I didn’t say everyone qualifies,” Long responded. “I said virtually everyone qualifies, meaning most people.”

Sen. Elizabeth Warren, D-Massachusetts, and other Democrats also questioned Long about whether he would follow Trump’s orders to audit certain taxpayers or remove the tax-exempt status of organizations, even if it violated the law. Long insisted he would follow the law but declined to explicitly say whether he would defy an order from Trump.

“I don’t intend to let anybody direct me to start an audit for political reasons,” he said.

Minnesota approved a bill on Monday night to create additional pathways to CPA licensure, and it awaits the signature of Gov. Tim Walz.

As part of an omnibus bill, Senate File 3045, it creates two new pathways to CPA licensure: a bachelor’s degree plus two years of experience, or a master’s degree plus one year of experience. The new pathways will be effective Jan. 1, 2026. 

The bill sunsets the current 150-hour credit rule after June 30, 2030, and establishes automatic mobility and practice privileges one day following the bill’s ratification. All candidates must still pass all parts of the CPA exam.

Jill Clardy/stock.adobe.com

“It’s a step forward in the right direction,” said Geno Fragnito, government relations director at the Minnesota Society of CPAs. “It allows some flexibility to hopefully bring in people who are on the fence about whether they could afford the extra year of education and whether the accounting profession fit into their long-term goals because of that.”

Generally, the governor has 14 days to act on the presented bill. Otherwise, without any action, the bill becomes law. Minnesota is one of more than a dozen states that have already passed changes to licensure requirements in an ongoing effort to address the profession’s talent shortage.

(Read more: “New ways to CPA”)

Minnesota was the first state to propose licensing changes in December 2022. 

“Initial strong opposition eventually turned into support as more professionals, state societies, universities, government entities and businesses rallied behind broadening pathways to CPA licensure with the first state, Ohio, passing its law in January,” said an MNCPA blog post.

“There were a lot of people — chairs ahead of me and other people on the board and at the Minnesota society — that have done a ton of work on this and really deserve a lot of credit for all of the conversations they had and the testifying they did,” said MNCPA chair Eric O’Link. “We’re very appreciative of our legislative sponsors and everybody who helped make it a reality.”