§ 32. Earned income
(a)
Allowance of credit
(1)
In general
In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the credit percentage of so much of the taxpayer’s earned income for the taxable year as does not exceed the earned income amount.
(b)
Percentages and amounts
For purposes of subsection (a)—
(1)
Percentages
The credit percentage and the phaseout percentage shall be determined as follows:
(A)
In general
In the case of taxable years beginning after 1995:
| In the case of an eligible individual with: | The credit percentage is: | The phaseout percentage is: |
|---|---|---|
| 1 qualifying child | 34 | 15.98 |
| 2 or more qualifying children | 40 | 21.06 |
| No qualifying children | 7.65 | 7.65 |
(2)
Amounts
(A)
In general
Subject to subparagraph (B), the earned income amount and the phaseout amount shall be determined as follows:
| In the case of an eligible individual with: | The earned income amount is: | The phaseout amount is: |
|---|---|---|
| 1 qualifying child | $6,330 | $11,610 |
| 2 or more qualifying children | $8,890 | $11,610 |
| No qualifying children | $4,220 | $5,280 |
(3)
Special rules for 2009, 2010, 2011, and 2012
In the case of any taxable year beginning in 2009, 2010, 2011, or 2012—
(A)
Increased credit percentage for 3 or more qualifying children
In the case of a taxpayer with 3 or more qualifying children, the credit percentage is 45 percent.
(c)
Definitions and special rules
For purposes of this section—
(1)
Eligible individual
(A)
In general
The term “eligible individual” means—
(ii)
any other individual who does not have a qualifying child for the taxable year, if—
(I)
such individual’s principal place of abode is in the United States for more than one-half of such taxable year,
(II)
such individual (or, if the individual is married, either the individual or the individual’s spouse) has attained age 25 but not attained age 65 before the close of the taxable year, and
(III)
such individual is not a dependent for whom a deduction is allowable under section
151 to another taxpayer for any taxable year beginning in the same calendar year as such taxable year.
For purposes of the preceding sentence, marital status shall be determined under section
7703.
(B)
Qualifying child ineligible
If an individual is the qualifying child of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall not be treated as an eligible individual for any taxable year of such individual beginning in such calendar year.
(C)
Exception for individual claiming benefits under section
911
The term “eligible individual” does not include any individual who claims the benefits of section
911 (relating to citizens or residents living abroad) for the taxable year.
(D)
Limitation on eligibility of nonresident aliens
The term “eligible individual” shall not include any individual who is a nonresident alien individual for any portion of the taxable year unless such individual is treated for such taxable year as a resident of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section
6013.
(E)
Identification number requirement
No credit shall be allowed under this section to an eligible individual who does not include on the return of tax for the taxable year—
(ii)
if the individual is married (within the meaning of section
7703), the taxpayer identification number of such individual’s spouse.
(2)
Earned income
(A)
The term “earned income” means—
(B)
For purposes of subparagraph (A)—
(i)
the earned income of an individual shall be computed without regard to any community property laws,
(iii)
no amount to which section
871
(a) applies (relating to income of nonresident alien individuals not connected with United States business) shall be taken into account,
(iv)
no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account,
(v)
no amount described in subparagraph (A) received for service performed in work activities as defined in paragraph (4) or (7) of section 407(d) of the Social Security Act to which the taxpayer is assigned under any State program under part A of title IV of such Act shall be taken into account, but only to the extent such amount is subsidized under such State program, and
(vi)
a taxpayer may elect to treat amounts excluded from gross income by reason of section
112 as earned income.
(3)
Qualifying child
(4)
Treatment of military personnel stationed outside the United States
For purposes of paragraphs (1)(A)(ii)(I) and (3)(C), the principal place of abode of a member of the Armed Forces of the United States shall be treated as in the United States during any period during which such member is stationed outside the United States while serving on extended active duty with the Armed Forces of the United States. For purposes of the preceding sentence, the term “extended active duty” means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.
(e)
Taxable year must be full taxable year
Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.
(f)
Amount of credit to be determined under tables
(1)
In general
The amount of the credit allowed by this section shall be determined under tables prescribed by the Secretary.
(2)
Requirements for tables
The tables prescribed under paragraph (1) shall reflect the provisions of subsections (a) and (b) and shall have income brackets of not greater than $50 each—
(i)
Denial of credit for individuals having excessive investment income
(1)
In general
No credit shall be allowed under subsection (a) for the taxable year if the aggregate amount of disqualified income of the taxpayer for the taxable year exceeds $2,200.
(2)
Disqualified income
For purposes of paragraph (1), the term “disqualified income” means—
(B)
interest received or accrued during the taxable year which is exempt from tax imposed by this chapter,
(C)
the excess (if any) of—
(D)
the capital gain net income (as defined in section
1222) of the taxpayer for such taxable year, and
(E)
the excess (if any) of—
(i)
the aggregate income from all passive activities for the taxable year (determined without regard to any amount included in earned income under subsection (c)(2) or described in a preceding subparagraph), over
For purposes of subparagraph (E), the term “passive activity” has the meaning given such term by section
469.
(j)
Inflation adjustments
(1)
In general
In the case of any taxable year beginning after 1996, each of the dollar amounts in subsections (b)(2) and (i)(1) shall be increased by an amount equal to—
(B)
the cost-of-living adjustment determined under section
1
(f)(3) for the calendar year in which the taxable year begins, determined—
(i)
in the case of amounts in subsections (b)(2)(A) and (i)(1), by substituting “calendar year 1995” for “calendar year 1992” in subparagraph (B) thereof, and
(ii)
in the case of the $3,000 amount in subsection (b)(2)(B)(iii), by substituting “calendar year 2007” for “calendar year 1992” in subparagraph (B) of such section
1.
(k)
Restrictions on taxpayers who improperly claimed credit in prior year
(1)
Taxpayers making prior fraudulent or reckless claims
(A)
In general
No credit shall be allowed under this section for any taxable year in the disallowance period.
(2)
Taxpayers making improper prior claims
In the case of a taxpayer who is denied credit under this section for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no credit shall be allowed under this section for any subsequent taxable year unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit.
(l)
Coordination with certain means-tested programs
For purposes of—
(5)
the Food and Nutrition Act of 2008,
any refund made to an individual (or the spouse of an individual) by reason of this section, and any payment made to such individual (or such spouse) by an employer under section
3507,[1] shall not be treated as income (and shall not be taken into account in determining resources for the month of its receipt and the following month).
(m)
Identification numbers
Solely for purposes of subsections (c)(1)(E) and (c)(3)(D), a taxpayer identification number means a social security number issued to an individual by the Social Security Administration (other than a social security number issued pursuant to clause (II) (or that portion of clause (III) that relates to clause (II)) of section 205(c)(2)(B)(i) of the Social Security Act).
[1] See References in Text note below.