Code Section 36A

The provision provides eligible individuals a refundable income tax credit for two years (taxable years beginning in 2009 and 2010).

The credit is the lesser of (1) 6.2 percent of an individual’s earned income or (2) $400 ($800 in the case of a joint return). For these purposes, the earned income definition is the same as for the earned income tax credit with two modifications. First, earned income for these purposes does not include net earnings from self-employment which are not taken into account in computing taxable income. Second, earned income for these purposes includes combat pay excluded from gross income under section 112.

The credit is phased out at a rate of two percent of the eligible individual’s modified adjusted gross income above $75,000 ($150,000 in the case of a joint return). For these purposes an eligible individual’s modified adjusted gross income is the eligible individual’s adjusted gross income increased by any amount excluded from gross income under sections 911, 931, or 933. An eligible individual means any individual other than:

(1) a nonresident alien;
(2) an individual with respect to whom another individual may claim a dependency deduction for a taxable year beginning in a calendar year in which the eligible individual’s taxable year begins; and
(3) an estate or trust. Each eligible individual must satisfy identical taxpayer identification number requirements to those applicable to the earned income tax credit.

Also, the Act provides that the otherwise allowable making work pay credit allowed under the provision is reduced by the amount of any payment received by the taxpayer pursuant to the provisions of the bill providing economic recovery payments under the Veterans Administration, Railroad Retirement Board, and the Social Security Administration and a temporary refundable tax credit for certain government retirees.39 The Act treats the failure to reduce the making work pay credit by the amount of such payments or credit, and the omission of the correct TIN, as clerical errors. This allows the IRS to assess any tax resulting from such failure or omission without the requirement to send the taxpayer a notice of deficiency allowing the taxpayer the right to file a petition with the Tax Court.