CREDIT FOR CERTAIN EARNED INCOME.

SEC. 204. CREDIT FOR CERTAIN EARNED INCOME. (a) Allowance of Credit.— Subpart A of part IV of subchapter A of chapter 1 (relating to credits against tax) is amended by redesignating section 43 as section 44, and by inserting after section 42 the following new section: “SEC. 43. EARNED INCOME. “(a) Allowance of Credit.— In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 10 percent of so much of the earned income for the taxable year as does not exceed $4,000. “(b) Limitation.— The amount of the credit allowable to a taxpayer under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount equal to 10 percent of so much of the adjusted gross income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds $4,000. 89 STAT. 31 “(c) Definitions.— For purposes of this section— “(1) Eligible individual.— The term ‘eligible individual’ means an individual who, for the taxable year— “(A) maintains a household (within the meaning of section 214(b)(3)) in the United States which is the principal place of amide of that individual and of a child of that individual with respect to whom he is entitled to claim a deduction under section 151(e)(1)(B) (relating to additional exemption for dependents), and “(B) is not entitled to exclude any amount from gross income under section 911 (relating to earned income from sources without the United States) or section 931 (relating to income from sources within the possessions of the United States). “(2) Earned income.— “(A) The term ‘earned income’ means— “(i) wages, salaries, tips, and other employee compensation, plus “(ii) the amount of the taxpayer’s net earnings from self-employment for the taxable year (within the meaning of section 1402(a)). “(B) For purposes of subparagraph (A)— “(i) except as provided in clause (ii), any amount shall be taken into account only if such amount is includible in the gross income of the taxpayer for the taxable year, _ “(ii) the earned income of an individual shall be computed without regard to any community property laws, “(iii) no amount received as a pension or annuity shall be taken into account, and “(iv) 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. “(d) Married Individuals.— In the case of an individual who is married (within the meaning of section 143), this section shall apply only if a joint return is filed for the taxable year under section 6013. “(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.” (b) Refund To Be Made Where Credit Exceeds Li ability for Tax.— (1) Section 6401(b) (relating to excessive credits) is amended— (A) by inserting “43 (relating to earned income credit),” before “and 667(b)”; and (B) by striking out “and 39” and inserting in lieu thereof a comma and “, 39, and 43”. (2) Section 6201(a)(4) (relating to assessment authority) is amended by— (A) inserting “or 43” after “section 39” in the caption of such section; and (B) striking out “oil),” and inserting in lien thereof “oil) or section 43 (relating to earned income),”. 89 STAT. 32 (c) Clerical Amendment.— The table of sections for such subpart is amended by striking out the last item and inserting in lieu thereof the following: “Sec. 43. Credit fur certain earned income. “Sec. 44. Overpayments of tax.”