EXPANSION AND SIMPLIFICATION OF EARNED INCOME TAX CREDIT.

SEC. 13131. EXPANSION AND SIMPLIFICATION OF EARNED INCOME TAX CREDIT. (a) General Rule.— Section 32 (relating to earned income credit) is amended by striking subsections (a) and (b) and inserting the following: “(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. “(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.— The credit percentage and the phase-out 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 “(B) Transitional percentages for 1995.— In the case of taxable years beginning in 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 36 20.22 No qualifying children 7.65 7.65 107 STAT. 434 “(C) Transitional percentages for 1994.— In the case of a taxable year beginning in 1994: In the case of an eligible individual with: The credit percentage is: The phaseout percentage is 1 qualifying child 26.3 15.98 2 or more qualifying children 30 17.68 No qualifying children 7.65 7.65 “(2) Amounts.— The earned income amount and the phase-out amount shall be determined as follows: “(A) In general.— In the case of taxable years beginning after 1994: In the case of an eligible individual with: The earned income amount is: The phaseout amount is: 1 qualifying child $6,000 $11,000 2 or more qualifying children $8,425 $11,000 No qualifying children $4,000 $5,000 “(B) Transitional amounts.— In the case of a taxable year beginning in 1994: In the case of an eligible individual with: The earned income amount is: The phaseout amount is: 1 qualifying child $7,750 $11,000 2 or more qualifying children $8,425 $11,000 No qualifying children $4,000 $5,000”. (b) Eligible Individual.— Subparagraph (A) of section 32(c)(1) (defining eligible individual) is amended to read as follows: “(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. For purposes of the preceding sentence, marital status shall be determined under section 7703.” (c) Inflation Adjustments.— Section 32(i) (relating to inflation adjustments) is amended— (1) by striking paragraphs (1) and (2) and inserting the following new paragraph: 107 STAT. 435 “(1) In general.— In the case of any taxable year beginning after 1994, each dollar amount contained in subsection (b)(2)(A) 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, by substituting ‘calendar year 1993’ for ‘calendar year 1992’.”, and (2) by redesignating paragraph (3) as paragraph (2). (d) Conforming Amendments.— (1) Subparagraph (D) of section 32(c)(3) is amended— (A) by striking “clause (i) or (ii)” in clause (iii) and inserting “clause (i)”, (B) by striking clause (ii), and (C) by redesignating clause (iii) as clause (ii). (2) Paragraph (3) of section 162(1) is amended to read as follows: “(3) Coordination with medical deduction.— Any amount paid by a taxpayer for insurance to which paragraph (1) applies shall not be taken into account in computing the amount allowable to the taxpayer as a deduction under section 213(a).” (3) Section 213 is amended by striking subsection (f). (4) Subsection (b) of section 3507 is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by inserting after paragraph (1) the following new paragraph: “(2) certifies that the employee has 1 or more qualifying children (within the meaning of section 32(c)(3)) for such taxable year,”. (5) Subparagraph (B) of section 3507(c)(2) is amended by striking clauses (i) and (ii) and inserting the following: “(i) of not more than 60 percent of the credit percentage in effect under section 32(b)(1) for an eligible individual with 1 qualifying child and with earned income not in excess of the earned income amount in effect under section 32(b)(2) for such an eligible individual, which “(ii) phases out at 60 percent of the phaseout percentage in effect under section 32(b)(1) for such an eligible individual between the phaseout amount in effect under section 32(b)(2) for such an eligible individual and the amount of earned income at which the credit under section 32(a) phases out for such an eligible individual, or”. (6) Section 3507 is amended by adding at the end thereof the following new subsection: “(f) Internal Revenue Service Notification.— The Internal Revenue Service shall take such steps as may be appropriate to ensure that taxpayers who have 1 or more qualifying children and who receive a refund of the credit under section 32 are aware of the availability of earned income advance amounts under this section.” (e) Effective Date.— The amendments made by this section shall apply to taxable years beginning after December 31, 1993.