26 U.S.C. § 32 — Earned income

(a) Allowance of credit. An "eligible individual" gets a tax credit equal to the "credit percentage" times their earned income, up to the "earned income amount" cap. But the credit can't be more than the credit percentage times the earned income amount, minus the phaseout percentage times however much the person's adjusted gross income, or earned income if that's higher, exceeds the "phaseout amount." (b) Percentages and amounts. The credit percentage and phaseout percentage depend on the number of qualifying children: with 1 child, 34 percent credit and 15.98 percent phaseout; with 2 children, 40 percent and 21.06 percent; with 3 or more, 45 percent and 21.06 percent; with none, 7.65 percent and 7.65 percent. The earned income amount and phaseout amount also depend on the number of children: with 1 child, a $6,330 earned-income cap and $11,610 phaseout start; with 2 or more, $8,890 and $11,610; with none, $4,220 and $5,280. On a joint return, add $5,000 to the phaseout amount. (c) Definitions and special rules. An "eligible individual" is anyone with a qualifying child for the year, or anyone without one if their main home is in the United States for more than half the year, they, or their spouse if married, are between 25 and 64 at year's end, and nobody else can claim them as a dependent for a tax year starting in the same calendar year. Someone who is themselves a qualifying child of another taxpayer can't also be an eligible individual that year. Anyone claiming the foreign-earned-income exclusion for the year isn't eligible. A nonresident alien for any part of the year isn't eligible unless treated as a full-year U.S. resident by election. No credit is allowed unless the return includes the filer's taxpayer identification number, and the spouse's too if married. "Earned income" means wages, salary, tips, and other taxable employee pay, plus net self-employment earnings, reduced by the self-employment-tax deduction. In figuring earned income, community-property laws are ignored; pensions and annuities don't count; certain nonresident alien income doesn't count; pay for work done as a prison inmate doesn't count; pay for certain state welfare-to-work activities doesn't count to the extent it's state-subsidized; and a taxpayer may elect to treat combat pay excluded from income as earned income. A "qualifying child" generally means a qualifying child as defined elsewhere in the tax code, with two exceptions from that definition set aside. A married child doesn't count unless the taxpayer can claim them, or nearly could, as a dependent. The child's main home must be in the United States. The child must be identified by name, age, and taxpayer identification number on the return, or by another method the IRS allows. A service member's home counts as being in the United States while stationed abroad on "extended active duty" — meaning active duty under orders for more than 90 days or an indefinite period — for purposes of the age and home-location tests. (d) Married individuals. A married person can only claim this credit on a joint return. Marital status generally follows the general tax-law rule, but someone counts as unmarried if they're legally married but don't file jointly, live with a qualifying child more than half the year, and either didn't live with their spouse during the last 6 months of the year, or has a separation agreement, other than divorce, and isn't living with the spouse by year's end. (e) Full tax year required. No credit for a tax year covering less than 12 months, except when the year is cut short by the taxpayer's death. (f) Amount of credit to be determined under tables. The credit amount comes from IRS-published tables. Those tables must follow subsections (a) and (b), with income brackets no wider than $50, covering earned income from $0 up to the phaseout point, and adjusted gross income from where the phaseout starts to where the credit fully phases out. Two subsections, (g) and (h), have been repealed by later laws, so no rule from them applies now. (i) Denial of credit for individuals having excessive investment income. No credit at all if the taxpayer's "disqualified income" for the year exceeds $10,000. Disqualified income adds up taxable interest and dividends; tax-exempt interest; net income from rents or royalties outside the ordinary course of business, after subtracting related expenses and interest deductions; net capital gain; and the excess, if any, of income over losses from all passive activities, not counting anything already counted as earned income or in the categories just listed. (j) Inflation adjustments. For tax years starting after 2015, and after 2021 for the $10,000 disqualified-income threshold, the dollar figures in subsections (b)(2) and (i)(1) get bumped up each year for inflation, using different base years for different amounts. The subsection (b)(2)(A) amounts, after adjustment, round to the nearest $10. The $10,000 disqualified-income threshold, after adjustment, rounds down to the nearest $50. (k) Restrictions on taxpayers who improperly claimed credit in prior year. No credit at all during a "disallowance period" for someone found to have wrongly claimed the credit before: 10 years after a final finding the claim was fraudulent, or 2 years after a final finding it was due to reckless or intentional disregard of the rules but not fraud. If a taxpayer was denied the credit for a year through the IRS deficiency process, they can't get it in any later year unless they give the IRS the information it requires to prove they now qualify. (l) Coordination with certain means-tested programs. For purposes of specified federal housing laws and the federal food-assistance law, an earned income credit refund isn't counted as income, and isn't counted as a resource for the month received or the month after. (m) Identification numbers. For the identification-number requirements described above, a valid taxpayer identification number means a Social Security number, not one issued only for certain non-work purposes, issued on or before the return's due date. (n) Special rules for individuals without qualifying children. For the one tax year beginning after December 31, 2020, and before January 1, 2022: the minimum age drops from 25 to a lower "applicable minimum age" — 19 generally, 24 for a "specified student" enrolled at least 5 months of the year, and 18 for a "qualified former foster youth," someone who was in foster care after age 14 and consents to disclosure of that status, or a "qualified homeless youth," someone certified as homeless, at risk of homelessness and self-supporting, or an unaccompanied youth. The maximum age of 65 is removed. The 7.65 percent credit and phaseout percentages for people with no children are replaced with 15.3 percent. The earned income amount for people with no children rises from $4,220 to $9,820, and the phaseout amount rises from $5,280 to $11,610. These one-year figures aren't subject to the regular inflation adjustment described above.