The charity Citizens Advice found that poor administration and recovery of overpaid tax credits has plunged many families below the breadline and into rising debt.
In a separate report, the Parliamentary Ombudsman, Ann Abraham, said complaints about the system currently account for nearly a quarter of all her cases.
Jonathan Stearn, director of End Child Poverty, said:"The tax credit system needs to be improved urgently and there must be no clawing money back from already impoverished families."
The Treasury said a case-by-case approach was being used to resolve overpayments of more than 300. Errors below 300 will automatically be written off.
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