26 USC 32 - Earned income

U.S Code last checked for updates: Nov 22, 2024

§ 32.

Earned income

(a)

Allowance of credit

(1)

In general

(2)

Limitation

The amount of the credit allowable to a taxpayer under paragraph (1) for any taxable year shall not exceed the excess (if any) of—

(A)

the credit percentage of the earned income amount, over

(B)

the phaseout percentage of so much of the adjusted gross income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds the phaseout amount.

(b)

Percentages and amounts

For purposes of subsection (a)—

(1)

Percentages

(2)

Amounts

(A)

In general

(B)

Joint returns

(c)

Definitions and special rules

For purposes of this section—

(1)

Eligible individual

(A)

In general

The term “eligible individual” means—

(i)

any individual who has a qualifying child for the taxable year, or

(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.

(B)

Qualifying child ineligible

(C)

Exception for individual claiming benefits under section 911

(D)

Limitation on eligibility of nonresident aliens

(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—

(i)

such individual’s taxpayer identification number, and

(ii)

if the individual is married, the taxpayer identification number of such individual’s spouse.

(2)

Earned income

(A)

The term “earned income” means—

(i)

wages, salaries, tips, and other employee compensation, but only if such amounts are includible in gross income for the taxable year, plus

(ii)

the amount of the taxpayer’s net earnings from self-employment for the taxable year (within the meaning of section 1402(a)), but such net earnings shall be determined with regard to the deduction allowed to the taxpayer by section 164(f).

(B)

For purposes of subparagraph (A)—

(i)

the earned income of an individual shall be computed without regard to any community property laws,

(ii)

no amount received as a pension or annuity shall be taken into account,

(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

(A)

In general

(B)

Married individual

(C)

Place of abode

(D)

Identification requirements

(i)

In general

(ii)

Other methods

(4)

Treatment of military personnel stationed outside the United States

(d)

Married individuals

(1)

In general

(2)

Determination of marital status

For purposes of this section—

(A)

In general

(B)

Special rule for separated spouse

An individual shall not be treated as married if such individual—

(i)

is married (as determined under section 7703(a)) and does not file a joint return for the taxable year,

(ii)

resides with a qualifying child of the individual for more than one-half of such taxable year, and

(iii)

(I)

during the last 6 months of such taxable year, does not have the same principal place of abode as the individual’s spouse, or

(II)

has a decree, instrument, or agreement (other than a decree of divorce) described in section 121(d)(3)(C) with respect to the individual’s spouse and is not a member of the same household with the individual’s spouse by the end of the taxable year.

(e)

Taxable year must be full taxable year

(f)

Amount of credit to be determined under tables

(1)

In general

(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—

(A)

for earned income between $0 and the amount of earned income at which the credit is phased out under subsection (b), and

(B)

for adjusted gross income between the dollar amount at which the phaseout begins under subsection (b) and the amount of adjusted gross income at which the credit is phased out under subsection (b).

[(g)

Repealed. Pub. L. 111–226, title II, § 219(a)(2), Aug. 10, 2010, 124 Stat. 2403]

[(h)

Repealed. Pub. L. 107–16, title III, § 303(c), June 7, 2001, 115 Stat. 55]

(i)

Denial of credit for individuals having excessive investment income

(1)

In general

(2)

Disqualified income

For purposes of paragraph (1), the term “disqualified income” means—

(A)

interest or dividends to the extent includible in gross income for the taxable year,

(B)

interest received or accrued during the taxable year which is exempt from tax imposed by this chapter,

(C)

the excess (if any) of—

(i)

gross income from rents or royalties not derived in the ordinary course of a trade or business, over

(ii)

the sum of—

(I)

the deductions (other than interest) which are clearly and directly allocable to such gross income, plus

(II)

interest deductions properly allocable to such gross income,

(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

(ii)

the aggregate losses from all passive activities for the taxable year (as so determined).

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 2015 (2021 in the case of the dollar amount in subsection (i)(1)), each of the dollar amounts in subsections (b)(2) and (i)(1) shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting in subparagraph (A)(ii) thereof—

(i)

in the case of amounts in subsection (b)(2)(A), “calendar year 1995” for “calendar year 2016”,

(ii)

in the case of the $5,000 amount in subsection (b)(2)(B), “calendar year 2008” for “calendar year 2016”, and

(iii)

in the case of the $10,000 amount in subsection (i)(1), “calendar year 2020” for “calendar year 2016”.

(2)

Rounding

(A)

In general

(B)

Disqualified income threshold amount

(k)

Restrictions on taxpayers who improperly claimed credit in prior year

(1)

Taxpayers making prior fraudulent or reckless claims

(A)

In general

(B)

Disallowance period

For purposes of paragraph (1), the disallowance period is—

(i)

the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to fraud, and

(ii)

the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud).

(2)

Taxpayers making improper prior claims

(l)

Coordination with certain means-tested programs

For purposes of—

(1)

the United States Housing Act of 1937,

(2)

title V of the Housing Act of 1949,

(3)

section 101 of the Housing and Urban Development Act of 1965,

(4)

sections 221(d)(3), 235, and 236 of the National Housing Act, and

(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 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

(n)

Special rules for individuals without qualifying children

In the case of any taxable year beginning after December 31, 2020, and before January 1, 2022—

(1)

Decrease in minimum age for credit

(A)

In general

(B)

Applicable minimum age

For purposes of this paragraph, the term “applicable minimum age” means—

(i)

except as otherwise provided in this subparagraph, age 19,

(ii)

in the case of a specified student (other than a qualified former foster youth or a qualified homeless youth), age 24, and

(iii)

in the case of a qualified former foster youth or a qualified homeless youth, age 18.

(C)

Specified student

(D)

Qualified former foster youth

For purposes of this paragraph, the term “qualified former foster youth” means an individual who—

(i)

on or after the date that such individual attained age 14, was in foster care provided under the supervision or administration of an entity administering (or eligible to administer) a plan under part B or part E of title IV of the Social Security Act (without regard to whether Federal assistance was provided with respect to such child under such part E), and

(ii)

provides (in such manner as the Secretary may provide) consent for entities which administer a plan under part B or part E of title IV of the Social Security Act to disclose to the Secretary information related to the status of such individual as a qualified former foster youth.

(E)

Qualified homeless youth

(2)

Elimination of maximum age for credit

(3)

Increase in credit and phaseout percentages

(4)

Increase in earned income and phaseout amounts

(A)

In general

The table contained in subsection (b)(2)(A) shall be applied—

(i)

by substituting “$9,820” for “$4,220”, and

(ii)

by substituting “$11,610” for “$5,280”.

(B)

Coordination with inflation adjustment

(Added Pub. L. 94–12, title II, § 204(a), Mar. 29, 1975, 89 Stat. 30, § 43; amended Pub. L. 94–164, § 2(c), Dec. 23, 1975, 89 Stat. 971; Pub. L. 94–455, title IV, § 401(c)(1)(B), (2), Oct. 4, 1976, 90 Stat. 1557; Pub. L. 95–600, title I, §§ 104(a)–(e), 105(a), Nov. 6, 1978, 92 Stat. 2772, 2773; Pub. L. 95–615, § 202(g)(5), formerly § 202(f)(5), Nov. 8, 1978, 92 Stat. 3100, renumbered § 202(g)(5) and amended Pub. L. 96–222, title I, §§ 101(a)(1), (2)(E), 108(a)(1)(A), Apr. 1, 1980, 94 Stat. 194, 195, 223; Pub. L. 97–34, title I, §§ 111(b)(2), 112(b)(3), Aug. 13, 1981, 95 Stat. 194, 195; Pub. L. 98–21, title I, § 124(c)(4)(B), Apr. 20, 1983, 97 Stat. 91; renumbered § 32 and amended Pub. L. 98–369, div. A, title IV, §§ 423(c)(3), 471(c), title X, § 1042(a)–(d)(2), July 18, 1984, 98 Stat. 801, 826, 1043; Pub. L. 99–514, title I, §§ 104(b)(1)(B), 111(a)–(d)(1), title XII, § 1272(d)(4), title XIII, § 1301(j)(8), Oct. 22, 1986, 100 Stat. 2104, 2107, 2594, 2658; Pub. L. 100–647, title I, §§ 1001(c), 1007(g)(12), Nov. 10, 1988, 102 Stat. 3350, 3436; Pub. L. 101–508, title XI, §§ 11101(d)(1)(B), 11111(a), (b), (e), Nov. 5, 1990, 104 Stat. 1388–405, 1388–408, 1388–412, 1388–413; Pub. L. 103–66, title XIII, § 13131(a)–(d)(1), Aug. 10, 1993, 107 Stat. 433–435; Pub. L. 103–465, title VII, §§ 721(a), 722(a), 723(a), 742(a), Dec. 8, 1994, 108 Stat. 5002, 5003, 5010; Pub. L. 104–7, § 4(a), Apr. 11, 1995, 109 Stat. 95; Pub. L. 104–193, title IV, § 451(a), (b), title IX, §§ 909(a), (b), 910(a), (b), Aug. 22, 1996, 110 Stat. 2276, 2277, 2351, 2352; Pub. L. 105–34, title I, § 101(b), title III, § 312(d)(2), title X, § 1085(a)(1), (b)–(d), Aug. 5, 1997, 111 Stat. 798, 840, 955, 956; Pub. L. 105–206, title VI, §§ 6003(b), 6010(p)(1), (2), 6021(a), (b), July 22, 1998, 112 Stat. 791, 816, 817, 823, 824; Pub. L. 106–170, title IV, § 412(a), Dec. 17, 1999, 113 Stat. 1917; Pub. L. 107–16, title II, § 201(c)(3), title III, § 303(a)–(f), (h), June 7, 2001, 115 Stat. 47, 55–57; Pub. L. 107–147, title IV, § 416(a)(1), Mar. 9, 2002, 116 Stat. 55; Pub. L. 108–311, title I, § 104(b), title II, § 205, Oct. 4, 2004, 118 Stat. 1169, 1176; Pub. L. 109–135, title III, § 302(a), Dec. 21, 2005, 119 Stat. 2608; Pub. L. 109–432, div. A, title I, § 106(a), Dec. 20, 2006, 120 Stat. 2938; Pub. L. 110–234, title IV, § 4002(b)(1)(B), (2)(O), May 22, 2008, 122 Stat. 1096, 1097; Pub. L. 110–245, title I, § 102(a), June 17, 2008, 122 Stat. 1625; Pub. L. 110–246, § 4(a), title IV, § 4002(b)(1)(B), (2)(O), June 18, 2008, 122 Stat. 1664, 1857, 1858; Pub. L. 111–5, div. B, title I, § 1002(a), Feb. 17, 2009, 123 Stat. 312; Pub. L. 111–226, title II, § 219(a)(2), Aug. 10, 2010, 124 Stat. 2403; Pub. L. 111–312, title I, § 103(c), Dec. 17, 2010, 124 Stat. 3299; Pub. L. 112–240, title I, § 103(c), Jan. 2, 2013, 126 Stat. 2319; Pub. L. 113–295, div. A, title II, §§ 206(a), 221(a)(3), Dec. 19, 2014, 128 Stat. 4027, 4037; Pub. L. 114–113, div. Q, title I, § 103(a)–(c), title II, § 204(a), Dec. 18, 2015, 129 Stat. 3044, 3045, 3081; Pub. L. 115–97, title I, § 11002(d)(1)(D), Dec. 22, 2017, 131 Stat. 2060; Pub. L. 115–141, div. U, title I, § 101(a), title IV, § 401(b)(4), Mar. 23, 2018, 132 Stat. 1160, 1201; Pub. L. 117–2, title IX, §§ 9621(a), 9622(a), 9623(a), (b), 9624(a), (b), Mar. 11, 2021, 135 Stat. 152–154.)

cite as: 26 USC 32