Page 1 GAO-14-652R Tax Code Differences

441 G St. N.W.

Washington, DC 20548

July 18, 2014

The Honorable Ron Wyden 

Chairman 

The Honorable Orrin Hatch 

Ranking Member 

Committee on Finance 

United States Senate 

Tax Policy: Differences in Definitions and Rules in the Tax Code

The federal tax system contains complex rules and multiple definitions for the same or similar 

terms. These rules and definitions may be necessary to target benefits to specific groups of 

taxpayers, among other reasons. For example, according to a 2010 report by the President’s 

Economic Recovery Advisory Board, most families with children receive at least two and 

frequently three or more child-related tax benefits.1

For example, income definitions, which are often used to reduce or phase out certain tax 

benefits, may be intended to target benefits to particular groups or prevent abusive taxsheltering. However, because tax provisions phase out over different income levels using 

different definitions of income, calculating income can complicate tax preparation and increase 

opportunities for errors. Also, administering complex tax rules can strain the Internal Revenue 

Service’s (IRS) ability to serve taxpayers because of the resources needed to develop 

guidance, clarify instructions, or address misreporting. 

These benefits could be targeting lower 

income working families or families with child-care or adoption expenses. However, different 

rules and definitions can also impose a wide range of recordkeeping, planning, computational, 

and filing requirements upon individual taxpayers. Complying with these requirements costs 

taxpayers time and money. 

You asked about definitional differences across tax code provisions and how they may lead to 

tax code complexity and taxpayer burden. This report identifies instances in the federal tax code 

where the same or similar term is defined differently or when taxpayers are subject to different 

rules under various tax provisions, particularly those aimed at similar objectives. To determine 

what is known about the differences in definitions and rules across provisions in the tax code, 

we conducted a literature review, consulted relevant laws and regulations, and interviewed 

representatives from the tax filing and preparation community and federal agencies involved in 

tax policy and administration. While we attempted to be thorough in our research methods, our 

findings are not generalizable or designed to be a complete catalog of differences in the federal 

tax code.2

 1

The President’s Economic Recovery Advisory Board, The Report on Tax Reform Options: Simplification, 

Compliance, and Corporate Taxation (August 2010).

To determine which tax code definitions were within the scope of our engagement, 

we applied the following criteria: (1) based within federal tax code; (2) affected individual 

2

Detailed description of scope and methodology can be found in enclosure I.
Page 2 GAO-14-652R Tax Code Differences

taxpayers (taxpayers that file Form 1040 and related schedules); and (3) compared distinct, 

separate terms or definitions. To determine which tax code rules were within the scope of our 

engagement, we applied the same criteria as for definitions but limited the scope to tax 

provisions that targeted similar taxpayer populations or policy objectives. Because the 

differences in these tax provisions were not always specified in statute but rather in Department 

of the Treasury regulations or IRS guidance, we reviewed these sources along with the federal 

tax code. 

We conducted our work from September 2013 to July 2014 in accordance with all sections of 

GAO’s Quality Assurance Framework that are relevant to our objective. The framework requires 

that we plan and perform the engagement to obtain sufficient and appropriate evidence to meet 

our stated objective and to discuss any limitations in our work. We believe that the information 

and data obtained, and the analysis conducted, provide a reasonable basis for any findings and 

conclusions in this product.

In summary, definitions for the same or similar terms can differ across tax provisions and policy 

objectives. These terms include (1) income, (2) small business, and (3) disabled. At least a 

dozen different tax code sections modify adjusted gross income (AGI) as part of determining the 

tax consequences of a particular provision. Depending on the code section, modified adjusted 

gross income (MAGI) is determined by incorporating as few as one and as many as nine

modifications. The definition of small business can differ based on number of employees, 

amount of gross receipts, and other characteristics. The definition of disabled also varies across 

the tax code. Rules and definitions for the same or similar terms can also vary among tax 

provisions with similar policy objectives, such as (1) child-related tax benefits, (2) education tax 

benefits, and (3) retirement savings benefits. Many of the child-related tax benefits require 

multiple calculations, and each defines an eligible child using a different combination of age, 

residency, and relationship requirements. The tax code includes at least eleven different 

provisions benefiting taxpayers with educational expenses. All of these provisions encourage 

educational investment, and most help offset expenses for tuition and fees. However, rules 

determining eligibility for these benefits differ by income qualifications, eligible expenses, 

educational institution, and education level. The tax code offers at least half a dozen tax-favored 

retirement savings incentives. All these incentives encourage taxpayers to save money for 

retirement, but they also have different rules for contribution limits, contribution method, timing 

of distributions, taxation of withdrawals, and loan allowance. While simplification of definitions 

and rules can have benefits, some differences will always be required to appropriately target tax 

policy goals.

Background

The current tax system is widely viewed as complex, thereby reducing the ability of individuals 

to understand and comply with tax laws. Tax code complexity is partly the result of new 

provisions being added individually to achieve a particular policy goal, but with inadequate 

attention to how they interact with existing provisions. This process results in duplicative and 

overlapping provisions, multiple definitions of concepts like income, and differences in phaseout rules, among others.

The growing number of tax expenditures has also contributed to tax code complexity. Tax 

expenditures are reductions in a taxpayer's tax liability that are the result of special exemptions 

and exclusions from taxation, deductions, credits, deferrals of tax liability, or preferential tax 

rates. Between 1974 and 2010, tax expenditures reported by the Department of the Treasury 
Page 3 GAO-14-652R Tax Code Differences

more than doubled in overall number from 67 to 173. Despite these challenges, if well designed 

and implemented, tax expenditures can provide incentives for taxpayers to engage in particular 

activities or can provide tax relief for taxpayers in special circumstances. Tax expenditures are 

often aimed at policy goals similar to those of federal spending programs. Existing tax 

expenditures, for example, are intended to encourage economic development in disadvantaged 

areas, finance postsecondary education, and stimulate research and development.3

Various changes have been made or proposed to make rules and definitions more consistent

across the tax code. As we have previously testified, one way to simplify the tax code would be 

for Congress to change the law to include more consistent definitions across tax provisions so 

that taxpayers could more easily understand and comply with their obligations.4 For example, 

starting with tax year 2005, the Working Families Tax Relief Act of 2004 created a more uniform 

definition of a child for certain provisions.5 The definition applies three tests for most childrelated benefits—relationship, residence, and support—but qualifying age differs depending on 

the tax benefit. This act also implemented a consistent tiebreaker rule for cases where a child 

qualifies as a child for more than one person. In addition, the National Taxpayer Advocate, the 

President’s Economic Recovery Advisory Board, the Joint Committee on Taxation, and 

numerous tax specialists have proposed various options to restructure tax benefits or unify 

definitions to simplify the tax code.6

Different Definitions for Terms across the Tax Code

Definitions for the same or similar terms can differ across tax provisions and policy objectives. 

These terms include (1) income, (2) small business, and (3) disabled. In enclosure II, tables 1 

through 3 compare different definitions for income, small business, and disabled, respectively. 

Also, tables 4 through 6 compare differences in rules and definitions for tax benefits related to 

children, education, and retirement, respectively. 

 3

GAO, Tax Expenditures: Background and Criteria and Evaluation Questions, GAO-13-167SP (Washington, D.C.: 

Nov. 29, 2012). 

4

GAO, Tax Gap: Complexity and Taxpayer Compliance, GAO-11-747T (Washington, D.C.: June 28, 2011).

5

Pub. L. No. 108–311, §§ 201–208, 118 Stat. 1166, 1169–1178. The act provided greater uniformity to the definition 

of a child for purposes of the head of household filing status, the dependency care credit, the child tax credit, the 

earned income tax credit, and dependency exemption. See, 26 U.S.C. §§ 2(b)(1)(A), 21(b)(1)(A), 24(c)(1), 32(c)(3), 

151–152.

6

The National Taxpayer Advocate leads the Taxpayer Advocate Service, an independent organization within IRS, 

which helps taxpayers resolve problems with IRS and recommends changes to prevent these problems. National 

Taxpayer Advocate, 2008 Annual Report to Congress, vol. 1, section 2 (Dec. 31, 2008). The President’s Economic 

Recovery Advisory Board, Tax Reform Options. Joint Committee on Taxation, Study of the Overall State of the 

Federal Tax System and Recommendations for Simplification, Pursuant to Section 8022(3)(B) of the Internal 

Revenue Code of 1986,Volume II: Recommendations of the Staff of the Joint Committee on Taxation to Simplify the 

Federal Tax System (April 2001). Elaine Maag, “Simplicity: Considerations in Designing a Unified Child Credit,” 

National Tax Journal, vol. 63, no. 4, Part 1 (2010).
Page 4 GAO-14-652R Tax Code Differences

Income

As shown in table 1, at least a dozen different tax code sections modify AGI as part of 

determining the tax consequences of a particular provision.7 Depending on the Internal Revenue 

Code (IRC) section, MAGI is determined by incorporating as few as one and as many as nine

modifications.8 For example, for purposes of the adoption credit, among others, MAGI is 

computed by adding back the following income excluded from AGI: foreign earned income; 

income from American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands; 

and income from Puerto Rico.9

Small Business 

As shown in table 2, the definition of a small business can differ based on number of 

employees, amount of gross receipts, and other characteristics. For example, under the Patient 

Protection and Affordable Care Act, a small business must have 25 or fewer full-time equivalent 

employees, among other requirements, to claim a certain tax credit, but to be eligible for a 

Savings Incentive Match Plan for Employees (SIMPLE) Individual Retirement Arrangement 

(IRA), a business must have 100 or fewer employees, among other requirements. Small 

business is also defined differently depending on whether a taxpayer is claiming a gain or a loss 

for a small business stock. If the taxpayer is claiming a gain, the qualified small business is 

defined by gross assets. If a taxpayer is claiming a loss, the small business is defined by 

amount of equity capital.10

Disabled 

As shown in table 3, the definition of disabled also varies across the tax code. All definitions 

include the inability to engage in some activity, but definitions differ by duration of impairment, 

whether proof of disability is required, what type of activity is limited, and whether income 

replacement benefits are received.11

 7

AGI is a taxpayer’s gross income minus certain deductions, like expenses related to work as an educator, health 

savings accounts, and student loan interest. To determine eligibility for other tax benefits, AGI is modified by adding 

back certain deductions that were excluded in the calculation of adjusted gross income. Gross income is defined in

Internal Revenue Code (IRC) section 61, and AGI is defined in IRC section 62. Differing definitions we identified are

modifications to AGI.

8

IRS administers the IRC—the federal tax laws enacted by Congress in Title 26 of the United States Code (26 

U.S.C.). The United States Code is a consolidation and codification or classification by subject matter of the general 

and permanent laws of the United States.

9

26 U.S.C. § 23(b)(2)(B). Income from these sources is excluded from AGI by IRC sections 911, 931, and 933.

10Equity capital is money raised by a business by selling shares of ownership, or potential ownership, of the 

business. 

11The term disability has also been defined differently among various federal programs and household surveys. See 

GAO, VA Disability Compensation: Actions Needed to Address Hurdles Facing Program Modernization, GAO-12-846

(Washington, D.C.: Sept. 10, 2012); Modernizing SSA Disability Programs: Progress Made, but Key Efforts Warrant 

More Management Focus, GAO-12-420 (Washington, D.C.: June 19, 2012); Federal Information Collection: A 

Reexamination of the Portfolio of Major Federal Household Surveys Is Needed, GAO-07-62 (Washington, D.C.: Nov. 

15, 2006).
Page 5 GAO-14-652R Tax Code Differences

Differences in Definitions and Rules among Tax Provisions with Similar Objectives

Rules and definitions for the same or similar terms can also vary among tax provisions with 

similar policy objectives. Generally, to claim certain tax benefits, taxpayers must determine their 

eligibility based on rules involving age, income, and other qualifying factors. These rules are 

designed to target benefits to certain taxpayer groups. However, they can also be confusing, 

particularly when rules differ among tax provisions that provide similar benefits, such as (1) 

child-related tax benefits, (2) education tax benefits, and (3) retirement savings benefits. 

Child-Related Benefits

Table 4 describes selected child-related benefits and compares rules and related definitions that 

govern each one. These benefits reduce taxes for families with children and for child-related 

expenses like day care. For example, IRS estimated that the child care credit was claimed on 

about 6 million tax returns in tax year 2011.12 However, rules and definitions determining 

eligibility for these benefits differ across provisions.13

• child age requirements,

Such differences include

• residency requirements,

• income limits,

• support limits,

• citizenship requirements, and

• Social Security number requirements.

As the table suggests, navigating the number of child-related tax credits and deductions can 

make it challenging and time-consuming for taxpayers to determine how to claim each benefit, 

especially since families can receive multiple benefits in a single year. This is burdensome 

because each credit or deduction is governed by slightly different eligibility definitions, rules, and 

benefit calculations. For example, each benefit is phased out in a different range and at a 

different rate. Many of the benefits require multiple calculations, and each defines an eligible 

child using a different combination of age, residency, and relationship requirements.

Education Benefits

Similarly, the tax system includes at least eleven different provisions benefiting taxpayers with 

educational expenses, which are listed in table 5. All of these provisions encourage educational 

investment, and most help offset expenses for tuition and fees. According to IRS, an education 

 122011 IRS Statistics of Income (SOI) data. Estimate has a margin of error at the 95 percent confidence level of (+/-) 

144,000 returns.

13Other differences exist among provisions with similar objectives, such as the maximum amount of benefit, type of 

benefit (e.g., credit, exemption), and whether the benefit is indexed to inflation. These differences may complicate tax 

planning and confuse taxpayers, but we are not considering them as rules or definitions for the purposes of this 

report. 
Page 6 GAO-14-652R Tax Code Differences

tax credit was claimed on an estimated 12 million tax returns in tax year 2011.14

• income qualifications,

However, rules 

determining eligibility for these benefits differ among provisions. Such differences include

• eligible expenses,

• eligible educational institution, and

• eligible education level. 

Concerns have been raised that these provisions are confusing and complex, making it difficult 

for taxpayers to properly claim the benefit. For example, in a 2008 testimony, we reported that 

among tax filers who appeared to be eligible for a tax credit or tuition deduction in tax year

2005, an estimated 19 percent (representing about 412,000 returns) did not claim any of them.15

The amount by which these tax filers did not reduce their tax averaged about $220. In total, 

including both those who did not claim a tax credit or tuition deduction and those who chose a 

credit or a deduction that did not maximize their benefit, we estimated that 28 percent, or about 

601,000 tax filers, did not maximize their potential tax benefit.16

Higher-education tax benefits also provide an example of how different definitions for the same 

term can create challenges for taxpayers. What tax filers are allowed to claim as a qualified 

higher-education expense varies between some of the various savings and credit provisions in 

the tax code. For example, while Coverdell education savings accounts and qualified tuition 

programs under IRC section 529 permit tax filers to include room and board as qualified 

expenses if the student is enrolled at least half time, the American Opportunity Credit and the 

Lifetime Learning Credit do not allow it.17

Retirement Savings Benefits

These dissimilar definitions require that tax filers keep 

track of expenses separately, applying some expenses to some tax preferences, but not to 

others.

The tax code offers at least half a dozen tax-favored retirement savings incentives, as shown in 

table 6. All these incentives encourage taxpayers to save money for retirement and have age 

distribution requirements. However, they also have different rules, such as

 142011 IRS SOI data. Estimate has a margin of error at the 95 percent confidence level of (+/-) 204,000 returns.

15Suboptimal choices were not limited to tax filers who prepared their own tax returns. We estimated that about 50 

percent of the returns that appeared to not optimally reduce the tax filer’s tax liability were prepared by paid tax 

preparers. See GAO, Higher Education: Multiple Higher Education Tax Incentives Create Opportunities for Taxpayers 

to Make Costly Mistakes, GAO-08-717T (Washington, D.C.: May 1, 2008).

16Estimates were based on GAO analysis of 2005 IRS SOI data. Percentage estimates have a margin of error at the 

95 percent confidence level of less than (+/-) 4 percentage points. Estimates of the number of returns and dollar 

amounts have a relative margin of error of (+/-) 14 percent or less.

17Coverdell education savings accounts are tax-preferred accounts for the purpose of paying qualified education 

expenses. The American Opportunity Credit—an expanded Hope Scholarship Credit available in tax years beginning 

after 2008 and before 2018—is a tax credit available to offset expenses during the first 4 years of postsecondary 

education for students enrolled in a degree or certificate program at least half-time at eligible institutions. The Lifetime 

Learning Credit is a tax credit available to offset expenses for degree and nondegree postsecondary education at 

eligible institutions.
Page 7 GAO-14-652R Tax Code Differences

• contribution limits,

• contribution method,

• timing of distributions,

• taxation of withdrawals, and 

• loan allowance.

Table 6 summarizes the different rules governing employer-sponsored retirement savings plans. 

For example, most plans penalize early withdrawals from retirement accounts, but some 

retirement plans allow early withdrawals without penalty for “hardship” (using different definitions 

of hardship) or allow for loans. Others allow early withdrawals for medical, home-buying, or 

educational expenses. Some accounts define “early” as before age 591⁄2 and some as anytime 

before an employee leaves his or her place of employment. The rules for when an employee 

may roll over contributions from one account to another have been partially harmonized, but 

there are still certain accounts that cannot be rolled into others or can only be rolled over after a 

waiting period. 

In addition, taxpayers can choose between traditional IRAs and Roth IRAs for retirement 

savings.18 Although the tax rules for distributions diverge for traditional and Roth IRAs, 

taxpayers may not understand that a 10 percent early withdrawal penalty, with some 

exceptions, applies to both IRA types. Taxpayers can also become confused over which early 

withdrawals from IRAs are not subject to penalties, in part because the exceptions differ for 

employer pension plans. Additionally, both types of IRAs have rules governing eligibility to 

contribute, and contributions to each are subject to an annual limit. However, taxpayers may not 

understand that the annual contribution limit applies across traditional IRAs and Roth IRAs in 

combination, which may lead them to overcontribute. With regard to record-keeping burden, 

taxpayers with traditional or Roth IRAs must track the total amount of contributions in a given 

year and reasons for distributions to accurately report this information on their tax returns.19

These complex rules can lead to taxpayer errors. For example, we previously reported that 

taxpayers underreported an estimated $6.3 billion in net income because of misreported IRA 

distributions in tax year 2001.20

Frequent changes to IRA rules (such as increasing contribution limits and allowing workers to 

tap IRA assets for certain nonretirement purposes without an early withdrawal penalty) have 

also made tax planning more difficult for taxpayers.

 18The traditional IRA allows tax deferral on investment earnings until retirement distribution with an up-front tax 

deduction from taxable income for contributions by eligible taxpayers, and retirement distributions are taxable. In 

contrast, the Roth IRA allows nondeductible, after-tax contributions for eligible taxpayers, and retirement distributions, 

including investment earnings, are generally tax-free.

19For both traditional and Roth IRAs, early distributions before age 591⁄2 for reasons other than specific exceptions, 

such as unreimbursed medical expenses and purchase of a first home, result in 10 percent additional tax.

20GAO, Individual Retirement Accounts: Additional IRS Actions Could Help Taxpayers Facing Challenges in 

Complying with Key Tax Rules, GAO-08-654 (Washington, D.C.: Aug. 14, 2008). GAO analysis of 2008 IRS SOI

data. Estimate has a margin of error at the 95 percent confidence level of less than or equal to (+/-) $2.2 billion.
Page 8 GAO-14-652R Tax Code Differences

Concluding Observations

While simplification of definitions and rules can have benefits, some differences will always be 

required to appropriately target tax policy goals. Tax expenditures exist to encourage certain 

behavior, like obtaining higher education, and differences in eligibility rules exist to promote 

equity among taxpayers with varying ability to pay their tax burdens. For example, harmonizing 

the definition of qualified educational expenses would help families understand which expenses 

are deductible and partly reduce administrative burden arising from hard-to-document 

expenses. However, harmonizing these rules and definitions would also treat taxpayers equally, 

even though they may have unequal expenses or ability to pay. Likewise, combining childrelated tax benefits would reduce the number of credits and deductions and standardize 

eligibility rules, potentially eliminating much of the complexity, computational burden, taxpayer 

confusion, and difficulties with enforcement in the current system. However, this simplification 

could also increase revenue loss relative to current law or increase taxes for current 

beneficiaries, and it would reduce the ability to use the tax code to target benefits to specific 

groups of taxpayers, such as those with younger children or in certain living arrangements. 

Consolidating credits would result in these different groups facing more similar tax burdens. In 

summary, tradeoffs exist between simplifying tax provisions and achieving other goals of tax 

policy.

Agency Comments

We provided IRS and the Department of the Treasury a draft of this report. On July 3, 2014, the 

Program Manager of GAO/TIGTA audits at IRS and the Director of the Office of Tax Policy 

Analysis at the Department of the Treasury responded via email that they did not have 

comments on the draft.

___________

We are sending copies of this report to the Secretary of the Treasury, Commissioner of Internal 

Revenue, and other interested parties. In addition, this report will be available at no charge on 

the GAO website at http://www.gao.gov.

If you or your staff has any questions about this report, please contact me at (202) 512-9110 or 

mctiguej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs 

may be found on the last page of this report. Key contributors to this report were Neil Pinney, 

Assistant Director; Elizabeth Fan; and Sherrice Kerns. Also contributing to this report were 

James Ashley, Lois Hanshaw, Cynthia Saunders, Stewart Small, and Andrew J. Stephens. 

James R. McTigue, Jr.

Director, Tax Issues

Strategic Issues

Enclosures – 2
Page 9 GAO-14-652R Tax Code Differences

Enclosure I: Objective, Scope, and Methodology

The objective of this report is to identify instances in the federal tax code where the same or 

similar term is defined differently or when taxpayers are subject to different rules under various 

tax provisions, particularly those aimed at similar objectives. To address this objective, we

conducted a literature review to identify reports related to differences in tax code definitions and 

rules. We identified these documents through a search of ProQuest, Nexis, Tax Notes, and Tax 

Law Review databases and a general Internet search. We generally limited our search to 

documents published in the past 5 years to help ensure that the material was still relevant. 

However, we included documents older than 5 years if they were seminal and provided relevant, 

key information. The focus of our literature review was on documents that addressed the 

benefits and burdens resulting from different definitions and rules in the tax code, rather than 

broader discussions of tax code complexity, simplification, or reform. We performed our 

searches from September 2013 to March 2014.

In addition, we consulted portions of federal laws and regulations, legislative histories, proposed 

legislation, and IRS guidance to verify tax code information obtained from other sources and to 

identify related differences. We also reviewed relevant reports from GAO, Congressional 

Research Service, National Taxpayer Advocate, Joint Committee on Taxation, and the 

President’s Economic Recovery Advisory Board. While we attempted to be thorough in our 

search methods, the reports that we found may not reflect all published reports that identify tax 

code differences. 

We conducted interviews with—and obtained documentation as applicable from—

representatives of federal agencies involved with tax policy and administration including the 

Department of the Treasury, Internal Revenue Service (IRS), National Taxpayer Advocate, and 

Joint Committee on Taxation. In addition, we held group interviews with representatives from 

the tax filing and preparation community including the American Institute of Certified Public 

Accountants, American Bar Association, and Council for Electronic Revenue Communication 

Advancement. We requested interviews with other similar organizations, such as the National 

Association of Enrolled Agents, who either provided us written responses or declined to 

participate in our review. We selected these organizations based on their expertise in the tax 

code and experience with preparing individual tax returns. We also asked the organizations we 

interviewed for recommendations of other organizations to contact.

Findings from our interviews are qualitative and are not meant to be representative of the overall 

population of tax professionals nationwide. Instead, these interviews provide ideas of the varied 

tax differences that occur within the federal tax code.

To determine which tax code definitions were within the scope of our engagement, we applied 

the following criteria: (1) based within federal tax code; (2) affected individual taxpayers 

(taxpayers that file Form 1040 and related schedules); and (3) compared distinct, separate 

terms or definitions. To determine which tax code rules were within the scope of our 

engagement, we applied the same criteria as for definitions but limited the scope to tax 

provisions that targeted similar taxpayer populations or policy objectives. Because the 

differences in these tax provisions were not always specified in statute but rather in Department 

of the Treasury regulations or IRS guidance, we reviewed these sources along with the federal 

tax code. 

We generally excluded rules and definitions that applied to corporations and pass-through 

entities, unless they could affect individual taxpayers, and federal spending programs. We also 

excluded procedural or administrative processes not primarily affecting individual taxpayer filing, 
Page 10 GAO-14-652R Tax Code Differences

issues that were complex or confusing but not comparing different rules or definitions, 

differences in treatment of taxpayers under the same rule, inherent differences that could not be 

modified without changing the purpose of the provision, differences that were not related to 

definitions or rules, and definitions that were predominantly the same throughout the tax code 

but may differ occasionally. 

The scope of our review was not generalizable or designed to be a complete catalog of 

differences in tax code definitions and rules. We did not attempt to quantify the costs and 

benefits of each difference.

To provide context about these differences, we included descriptive statistics on (1) the number 

of tax returns that claimed certain tax credits and (2) past GAO analysis of education and 

retirement benefits. We used IRS Statistics of Income data for the most recent, complete tax 

year available (2011) and determined the margin of error at the 95 percent confidence interval 

associated with these data. For statistics obtained from past GAO products, we confirmed that 

the statistics were reported accurately and modified the text where necessary. We determined 

that these data were sufficiently reliable for the purposes of this engagement.

We conducted our work from September 2013 to July 2014 in accordance with all sections of 

GAO’s Quality Assurance Framework that are relevant to our objective. The framework requires 

that we plan and perform the engagement to obtain sufficient and appropriate evidence to meet 

our stated objective and to discuss any limitations in our work. We believe that the information 

and data obtained, and the analysis conducted, provide a reasonable basis for any findings and 

conclusions in this product.
Page 11 GAO-14-652R Tax Code Differences

Enclosure II: Tables Comparing Differences in Tax Code Definitions and Rules

Table 1: Differences in Modifications to Adjusted Gross Income, Tax Year 2013

Tax provision and 

code section

Relevance of income 

definition to provision Income measure

Taxable Social 

Security and Tier 1 

Railroad Retirement 

Benefits 

Internal Revenue 

Code (IRC) § 86(b)(2)

Adjusted gross income (AGI) is 

used to determine if Social 

Security (SS) and Tier 1

Railroad Retirement (RR) 

benefits are taxable. If AGI, as 

modified for this provision, 

exceeds a base amount (for 

each filing status), a portion of 

the benefits (generally up to 

50%, 85% in some instances) 

are taxable.

For the purpose of this provision, AGI is modified by adding 

back

• excluded income from U.S. Savings Bonds used for 

education expenses (§ 135);

• excluded adoption assistance (§ 137);

• deducted domestic production activities (§ 199);

• deducted student loan interest (§ 221);

• deducted tuition and fees (§ 222);

• excluded foreign earned income (§ 911);

• excluded income by bona fide residents of Guam, the 

Commonwealth of the Northern Mariana Islands 

(CNMI), and American Samoa (§ 931);

• excluded income by bona fide residents of Puerto Rico 

(§ 933); and

• excluded interest (tax-exempt interest).

In addition, beneficiaries must add one-half of their benefits 

to the modified adjusted gross income (MAGI) calculation 

before they compare this income measure to the base 

amount.
Page 12 GAO-14-652R Tax Code Differences

Tax provision and 

code section

Relevance of income 

definition to provision Income measure

Education Savings 

Bond Program 

IRC § 135(c)(4)

The amount of interest income 

from certain savings bonds that 

can be excluded from gross 

income is reduced if AGI, as 

defined for this provision, 

exceeds a base amount (which 

varies by filing status).

For the purpose of this provision, AGI is modified by adding 

back

• excluded income from U.S. Savings Bonds used for 

education expenses (§ 135);

• excluded adoption assistance (§ 137);

• deducted domestic production activities (§ 199);

• deducted student loan interest (§ 221);

• deducted tuition and fees (§ 222);

• excluded foreign earned income (§ 911);

• excluded income by bona fide residents of Guam, 

CNMI, and American Samoa (§ 931); and

• excluded income by bona fide residents of Puerto Rico 

(§ 933). 

The taxable portion of income from SS and Tier 1 RR 

benefits (§ 86) is included in the calculation. Workplace 

retirement contribution deductions (§ 219) are not added 

back to AGI for this calculation. The limits on passive 

activity losses and credits (§ 469) apply to the calculation.
Page 13 GAO-14-652R Tax Code Differences

Tax provision and 

code section

Relevance of income 

definition to provision Income measure

Employer-Provided 

Adoption Assistance 

IRC § 137(b)(3)

The amount of employerprovided adoption assistance 

that can be excluded from gross 

income is reduced if AGI, as 

defined for this provision, 

exceeds a certain threshold.

For the purpose of this provision, AGI is modified by adding 

back

• excluded adoption assistance (§ 137); 

• deducted domestic production activities (§ 199);

• deducted student loan interest (§ 221);

• deducted tuition and fees (§ 222);

• excluded foreign earned income (§ 911);

• excluded income by bona fide residents of Guam, 

CNMI, and American Samoa (§ 931); and

• excluded income by bona fide residents of Puerto Rico 

(§ 933). 

The taxable portion of income from SS and Tier 1 RR 

benefits (§ 86) is included in the calculation. Workplace 

retirement contribution deductions (§ 219) and income from 

U.S. Savings Bonds used for education expenses (§ 135) 

are not added back to AGI for this calculation. The limits on 

passive activity losses and credits (§ 469) apply to the 

calculation.

Domestic Production 

Activity

IRC § 199(d)(2)

The amount of expenses that 

may be deducted as a domestic 

production activity by an 

individual is calculated as 9% of 

AGI, as modified.

For the purpose of this provision, for individuals, AGI is 

modified by adding back deducted domestic production 

activities (§ 199).

The taxable portion of income from SS and Tier 1 RR 

benefits (§ 86) is included in the calculation. Workplace 

retirement contribution deductions (§ 219), excluded 

income from U.S. Savings Bonds used for education 

expenses (§ 135), excluded adoption expenses (§ 137), 

student loan interest deductions (§ 221), and student loan 

tuition and fees deductions (§ 222) are not added back to 

AGI for this calculation. The limits on passive activity 

losses and credits (§ 469) apply to the calculation.
Page 14 GAO-14-652R Tax Code Differences

Tax provision and 

code section

Relevance of income 

definition to provision Income measure

Workplace 

Retirement 

Contributions 

IRC § 219(g)(3)(A)

AGI, as defined for this 

provision, is used to determine 

the amount of retirement 

contributions that can be 

deducted from income, based 

on certain phase-out ranges.

For the purpose of this provision, AGI is modified by adding 

back

• excluded income from U.S. Savings Bonds used for 

education expenses (§ 135);

• excluded adoption assistance (§ 137);

• deducted domestic production activities (§ 199);

• deducted contribution to retirement savings plans (§ 

219);

• deducted student loan interest (§ 221);

• deducted tuition and fees (§ 222); and 

• excluded foreign earned income (§ 911).

The taxable portion of income from SS and Tier 1 RR 

benefits (§ 86) is included in the calculation. The limits on 

passive activity losses and credits (§ 469) apply to the 

calculation.

Student Loan Interest 

Deduction

IRC § 221(b)(2)(C)

The amount of student loan 

interest that can be deducted 

from income is reduced if AGI, 

as defined for this provision, 

exceeds a certain threshold.

For the purpose of this provision, AGI is modified by adding 

back

• deducted domestic production activities (§ 199);

• deducted student loan interest (§ 221);

• deducted tuition and fees (§ 222);

• excluded foreign earned income (§ 911); 

• excluded income by bona fide residents of Guam, 

CNMI, and American Samoa (§ 931); and

• excluded income by bona fide residents of Puerto Rico 

(§ 933).

The taxable portion of income from SS and Tier 1 RR 

benefits (§ 86) is included in the calculation. U.S. Savings 

Bonds used for education (§ 135), employer provided 

adoption assistance (§ 137), and workplace retirement 

contribution deductions (§ 219), are not added back to AGI 

for this calculation. The limits on passive activity losses and 

credits (§ 469) apply to the calculation.
Page 15 GAO-14-652R Tax Code Differences

Tax provision and 

code section

Relevance of income 

definition to provision Income measure

Qualified Tuition and 

Expenses Deduction 

IRC § 222(b)(2)(C)

The amount of tuition and fees 

that can be deducted from 

income is reduced if AGI, as 

defined for this provision, 

exceeds a certain threshold.

For the purpose of this provision, AGI is modified by adding 

back

• deducted domestic production activities (§ 199); 

• deducted tuition and fees (§ 222);

• excluded foreign earned income (§ 911);

• excluded income by bona fide residents of Guam, 

CNMI, and American Samoa (§ 931); and

• excluded income by bona fide residents of Puerto Rico 

(§ 933).

The taxable portion of income from SS and Tier 1 RR 

benefits (§ 86) is included in the calculation. Excluded U.S. 

Savings Bonds used for education (§ 135), excluded 

employer provided adoption assistance (§ 137), workplace 

retirement contribution deductions (§ 219), and student 

loan interest deductions (§ 221), are not added back to AGI 

for this calculation. The limits on passive activity losses and 

credits (§ 469) apply to the calculation.

Roth Individual 

Retirement 

Arrangement (IRA) 

Contribution Limit

IRC § 

408A(c)(3)(B)(i), 

citing IRC § 219(g)(3) 

AGI is used to limit the total 

amount that can be contributed 

by a taxpayer to a Roth IRA. 

The amount that can be 

contributed is reduced as AGI, 

as defined for this provision, 

exceeds a certain threshold.

For the purpose of this provision, AGI is modified by adding 

back

• excluded income from U.S. Savings Bonds used for 

education expenses (§ 135);

• excluded adoption assistance (§ 137);

• deducted domestic production activities (§ 199);

• deducted retirement contributions (§ 219);

• deducted student loan interest (§ 221);

• deducted tuition and fees (§ 222); and

• excluded foreign earned income (§ 911).

The calculation does not include any income attributable to 

a rollover from an eligible retirement plan other than a Roth 

IRA (§ 408A(d)(3)). The taxable portion of income from SS 

and Tier 1 RR benefits (§ 86) is included in the calculation. 

The limits on passive activity losses and credits (§ 469) 

apply to the calculation.
Page 16 GAO-14-652R Tax Code Differences

Tax provision and 

code section

Relevance of income 

definition to provision Income measure

Coverdell Education 

Savings Accounts 

IRC § 530(c)(2)

AGI is used to limit the total 

amount that can be contributed 

by a taxpayer to Coverdell 

Education Savings Accounts for 

a single beneficiary. As AGI 

exceeds a certain threshold, the 

amount that can be contributed 

is reduced.

For the purpose of this provision, AGI is modified by adding 

back

• excluded foreign earned income (§ 911);

• excluded income by bona fide residents of Guam, 

CNMI, and American Samoa (§ 931); and

• excluded income by bona fide residents of Puerto Rico 

(§ 933).

Charitable 

Contribution 

Deductions 

IRC § 170(b)(1)(G)

The amount deducted for 

charitable contributions cannot 

be more than 50% of adjusted 

gross income. Deductions may 

be further limited to 30% or 20% 

of AGI, depending on the type of 

property donated and 

organization receiving the 

donation. A higher limit applies 

to certain qualified conservation 

contributions.

For the purpose of this provision, the contribution base is 

defined by AGI, excluding any net operating loss 

carrybacks (§ 172).

Adoption Expense 

Credit 

IRC § 23(b)(2)(B)

The amount of the credit is 

reduced if AGI as defined for the 

provision exceeds a certain 

threshold.

For the purpose of this provision, AGI is modified by adding 

back

• excluded foreign earned income (§ 911);

• excluded income by bona fide residents of Guam, 

CNMI, and American Samoa (§ 931); and

• excluded income by bona fide residents of Puerto Rico 

(§ 933).

Child Tax Credit

IRC § 24(b)(1)

AGI is used to determine the 

total benefit received when 

claiming this credit. The amount 

of the credit is reduced if AGI as 

defined for the provision 

exceeds a certain threshold.

For the purpose of this provision, AGI is modified by adding 

back

• excluded foreign earned income (§ 911);

• excluded income by bona fide residents of Guam, 

CNMI, and American Samoa (§ 931); and

• excluded income by bona fide residents of Puerto Rico 

(§ 933).
Page 17 GAO-14-652R Tax Code Differences

Tax provision and 

code section

Relevance of income 

definition to provision Income measure

American Opportunity 

Tax Credit and 

Lifetime Learning 

Credit 

IRC § 25A(d)(3)

AGI is used to determine the 

total benefit received when 

claiming this credit. The amount 

of the credit is reduced if AGI as 

defined for the provision 

exceeds a certain threshold.

For the purpose of this provision, AGI is modified by adding 

back

• excluded foreign earned income (§ 911);

• excluded income by bona fide residents of Guam, 

CNMI, and American Samoa (§ 931); and

• excluded income by bona fide residents of Puerto Rico 

(§ 933).

Elective Deferrals 

and IRA 

Contributions 

IRC § 25B(e)

AGI is used to determine the 

total benefit received when 

claiming this credit. The amount 

of the credit is reduced if AGI as 

defined for the provision 

exceeds a certain threshold.

For the purpose of this provision, AGI is modified by adding 

back

• excluded foreign earned income (§ 911);

• excluded income by bona fide residents of Guam, 

CNMI, and American Samoa (§ 931); and

• excluded income by bona fide residents of Puerto Rico 

(§ 933).

Refundable Credit for 

Coverage Under a 

Qualified Health 

Plana 

IRC § 36B(d)(2)(B)

The premium assistance credit 

is generally equal to the 

difference between the premium 

for a benchmark plan and the 

taxpayer’s expected 

contribution. The expected 

contribution is a specified 

percentage of the taxpayer's 

household income and 

increases with household 

income.

For the purpose of this provision, household income is 

defined as aggregate modified AGI with certain items 

added back: 

• non-taxable social security benefits (§ 86);

• excluded foreign earned income (§ 911); and

• tax-exempt interest.

Unearned Medicare 

Contribution

IRC § 1411(d)

Taxpayers may be subject to a 

3.8% tax on MAGI above certain 

threshold amounts. ($125,000-

married/separate; $200,000-

single; $250,000-married/joint)

For the purpose of this provision, AGI is modified by adding 

back excluded foreign earned income (§ 911), net 

disallowed exclusions/deductions with respect to foreign 

earned income.

Sources: GAO analysis of select IRC provisions and IRS publications. | GAO-14-652R

Notes: Adjusted gross income is defined in IRC section 62 as gross income minus specified deductions.

a

This credit goes into effect in 2014.
Page 18 GAO-14-652R Tax Code Differences

Table 2: Differences in Definitions for Small Business, (Current as of April 29, 2014)

Term and tax code section

Relevance of definition to the 

provision Definition

Based on number of employees

Small business

IRC § 41(b)(3)(D)(iii)

Provides an increased tax credit for 

eligible small businesses, among 

others, for certain contract research 

expenses.

Employer with average of 500 or fewer 

employees annually during either of the 2 

preceding calendar years.

Small business refiner

IRC § 45H(c)(1) (also 

referenced in IRC § 179B(a))

Provides small business refiners a 

tax credit for production of low sulfur 

diesel fuel.

Refiner of crude oil with not more than 1,500 

individuals engaged in the refinery 

operations of the business on any day 

during such taxable year, and average daily 

domestic refinery run or average retained 

production of which for all facilities of the 

taxpayer for the 1-year period ending on 

December 31, 2002, did not exceed 205,000 

barrels.

Eligible small employer

IRC § 45R(d)

Defines the small employer health 

insurance credit for certain small 

employers that provide insured 

health coverage to employees made 

available by section 38(b)(36). 

Section 45R was added to the IRC 

by the Patient Protection and 

Affordable Care Act.

Employer with no more than 25 full-time 

equivalent employees in a taxable year 

whose average annual wages do not exceed 

an amount equal to twice a certain dollar 

amount and which has a health plan 

contribution arrangement.

Eligible employera

IRC § 125(j)(5)

Allows eligible employers meeting 

contribution, eligibility, and 

participation requirements to

establish a simple cafeteria plan, 

which need not meet any 

nondiscrimination requirement 

otherwise applicable to such a 

cafeteria plan.

To be eligible, an employer must employ an 

average of 100 or fewer employees on 

business days during either of the 2 

preceding years. If the employer was not in 

existence throughout those years, the 

number of employees is based on the 

average number of employees that the 

employer is reasonably expected to employ 

in the current year.

Eligible employera

IRC § 408(k)(6)(B)

Allows employees to elect to have 

the employer make salary reduction 

payments to a simplified employee 

pension plan. The plan must have 

been established prior to 1997.

Employer must not have more than 25 

employees.
Page 19 GAO-14-652R Tax Code Differences

Term and tax code section

Relevance of definition to the 

provision Definition

Eligible employera

IRC § 408(p)(2)(C)(i) (also 

referenced in IRC § 

401(k)(11)(D)(i))

Provides employers with a simplified 

way to make contributions to 

retirement income using Savings 

Incentive Match Plan for Employees 

(SIMPLE) Individual Retirement 

Arrangements or SIMPLE 401(k) 

plans. 

Employer with 100 or fewer employees who 

received at least $5,000 in compensation. A 

2-year grace period applies to previously 

eligible employers who fail to meet the 

requirement in subsequent years.

Based on gross receipts or number of employees

Eligible small business

IRC § 44(b) 

Allows certain small businesses a 

tax credit for the costs of complying 

with the Americans with Disabilities 

Act of 1990, such as removing 

barriers to improve accessibility to a 

building.

Any person who either has gross receipts in 

the preceding tax year of $1 million or less 

or who employed not more than 30 full-time 

employees in the preceding tax year and 

makes an election.

Small business

IRC § 172(b)(1)(F)(iii) (related 

to IRC § 474 for eligible small 

business)

Allows eligible small businesses with 

a net operating loss to elect to offset 

this loss against income earned in 

up to 3 prior years.

Section 172 defines a small business as a 

corporation or partnership which meets the 

gross receipts test of section 448(c) or a 

sole proprietorship that would meet the 

gross receipts test had it been a corporation. 

In general, a corporation or partnership 

meets the gross receipts test under section 

448(c) for a prior taxable year if the average 

annual gross receipts of the entity for the 3-

taxable-year period ending with such year 

do not exceed $5 million. Related, section 

474 states that a taxpayer is an eligible 

small business for a taxable year if the 

average annual gross receipts of the 

taxpayer for the preceding taxable years do 

not exceed $5 million and rules similar to the 

rules of section 448(c)(3) apply.

Based on other characteristics

Qualified small businessb

IRC § 1202(d)

In general, allows taxpayers other 

than corporations to exclude from 

taxable income a portion of the gain 

from selling qualified small business 

stock held for more than 5 years.

A qualified small business is defined as a 

domestic C corporation with aggregate 

gross assets of less than $50 million at all 

times since 1993 and before issuance. The 

aggregate gross assets immediately after 

issuance cannot exceed $50 million, and the 

corporation agrees to submit report to the 

Secretary and its shareholders as may be 

required.
Page 20 GAO-14-652R Tax Code Differences

Term and tax code section

Relevance of definition to the 

provision Definition

Small business corporationb

IRC § 1244(c)(3) (referenced 

in IRC § 1274)

Allows individual taxpayers to 

deduct certain losses as ordinary 

losses when selling certain stock 

from domestic small business 

corporations.

A small business corporation is defined as a 

corporation with aggregate amount of 

money and other property received by the 

corporation for stock, as a contribution to 

capital, and as paid-in surplus, that does not 

exceed $1 million. 

Small business corporationb

IRC § 1361(b)(1)

Defines an S corporation as a small 

business corporation which elects to 

be treated as an S corporation. In 

general, an S corporation does not 

pay income tax, but its income, 

deductions, and credits are 

allocated to its shareholders. 

A small business corporation is defined as a 

domestic corporation which does not have 

more than 100 shareholders, does not have 

a shareholder who is not an individual (with 

certain exceptions for certain estates and 

trusts), does not have a nonresident alien as 

a shareholder, and does not have more than 

one class of stock. Section 1361 also 

defines electing small business trust and this 

definition is referred to in section 641. 

Source: GAO analysis of the IRC.  |  GAO-14-652R

Notes: In some instances, the IRC refers to definitions of small business or related terms outside the tax code. For example, at least 

nine IRC sections refer to the definition of a small business investment company operating under the Small Business Investment Act 

of 1958 (15 U.S.C. §§ 661–697g). 

a

We include the term “eligible employer” because it embodies the same concept as the term “small business,” even though “small

business” is not statutorily defined in these IRC sections. We did not attempt to identify all such provisions.

b

These terms refer to corporations. We include these terms because they could affect individual income tax reporting and were 

identified by tax specialists we interviewed or by our research on the IRC. 
Page 21 GAO-14-652R Tax Code Differences

Table 3: Differences in Definitions of Disabled, (Current as of April 17, 2014)

Term and tax code 

section

Relevance of definition to 

provision Definition

Permanent and total 

disability

IRC § 22(e)(3) 

(referenced in 3 other 

IRC sections)

Provides a tax credit for the 

elderly and permanently 

and totally disabled.

Permanent and total disability is defined as being unable to 

engage in any substantial gainful activity by reason of any 

medically determinable physical or mental impairment 

which can be expected to result in death or which has 

lasted or can be expected to last for a continuous period of 

not less than 12 months. Proof of disability must be 

furnished, as required.

Disabled

IRC § 72(m)(7) 

(referenced in more 

than 10 other IRC 

sections)

Defines disabled that is 

used to determine, for 

example, if a taxpayer is 

exempt from penalty on 

early withdrawals from 

retirement accounts.

A person is disabled if he or she is unable to engage in any 

substantial gainful activity by reason of any medically 

determinable physical or mental impairment which can be 

expected to result in death or to be of long-continued and 

indefinite duration. Proof of disability must be furnished, as 

required.

Disabled

IRC § 409A(a)(2)(C)

Allows disability to trigger 

payment for deferred 

compensation.

A person is considered disabled if he or she is unable to 

engage in any substantial gainful activity by reason of any 

medically determinable physical or mental impairment 

which can be expected to result in death or can be 

expected to last for a continuous period of not less than 12 

months, or is, by reason of any medically determinable 

physical or mental impairment which can be expected to 

result in death or can be expected to last for a continuous 

period of not less than 12 months, receiving income 

replacement benefits for a period of not less than 3 months 

under an accident and health plan covering employees of 

the participant's employer.

Financially disabled 

IRC § 6511(h)(2)

Suspends the statute of 

limitations period for filing a 

claim for a tax credit or 

refund if a taxpayer is 

unable to manage financial 

affairs due to disability.

An individual is financially disabled if the individual is 

unable to manage financial affairs by reason of a medically 

determinable physical or mental impairment of the 

individual which can be expected to result in death or which 

has lasted or can be expected to last for a continuous 

period of not less than 12 months. Proof of disability must 

be furnished, as required. An individual shall not be treated 

as financially disabled during any period that such 

individual's spouse or any other person is authorized to act 

on behalf of such individual in financial matters.

Source: GAO analysis of the IRC. |  GAO-14-652R

Note: In some instances, the IRC refers to definitions of disabled or disability outside the tax code, such as in the Americans With 

Disabilities Act of 1990 (42 U.S.C. §§ 12101–12213) and titles II and XVI of the Social Security Act (42 U.S.C. §§ 401–433 and §§ 

1381–1383f).
Page 22 GAO-14-652R Tax Code Differences

Table 4: Differences in Rules and Definitions for Selected Child-Related Tax Benefits, Tax Year 2013

Tax provision 

and code 

section Agea Residency 

requirementb Supportc

Social Security 

number 

reporting 

requirement 

for child

Income limitd and 

benefit phase out 

(reduction) 

Head of 

Household 

filing status

IRC § 2

• Child must be 

under age 19;

• child must be 

under age 24 if 

a full-time 

student; or

• child can be 

any age if 

permanently 

and totally 

disabled.

No additional 

requirements 

beyond those 

mentioned in 

table note b.

Child must not 

provide over 

half of his own 

support for the 

year.

Not required. Not applicable.

Child and 

Dependent 

Care Credit

IRC § 21

Child must be 

under age 13. 

No additional 

requirements 

beyond those 

mentioned in 

table note b.

Child must not 

provide over 

half of his own 

support for the 

year.

Required, 

unless the 

dependent is an 

alien or adoptee 

without a Social 

Security 

number, in 

which case an 

alternative 

taxpayer 

identification 

number must be 

provided.

In general, individuals 

are allowed the credit 

for expenses incurred 

to enable the taxpayer 

to be gainfully 

employed and for 

household services 

and care for a 

dependent. The 

amount of the credit is 

a percentage—which 

varies depending on

the taxpayer’s AGI—of 

the covered expenses. 

For taxpayers with an 

AGI of $15,000 or less, 

the applicable 

percentage is 35%. 

For each $2,000, or 

fraction thereof, the 

taxpayer’s AGI is 

above $15,000, the 

applicable percentage 

decreases by 1

percentage point to a 

minimum of 20%. 
Page 23 GAO-14-652R Tax Code Differences

Tax provision 

and code 

section Agea Residency 

requirementb Supportc

Social Security 

number 

reporting 

requirement 

for child

Income limitd and 

benefit phase out 

(reduction) 

Child Tax 

Credit 

IRC § 24

Child must be 

under age 17. 

If parents are 

divorced, 

separated, or live 

apart, and the 

child is treated as 

the qualifying 

child of the 

noncustodial 

parent, only the 

noncustodial 

parent can claim 

the tax credit. 

Child must not 

provide over 

half of his own 

support for the 

year.

Not required. Credit is reduced 5% 

for every $1,000, or 

fraction thereof, that 

modified AGI exceeds 

the following amounts:

Joint: $110,000 

Married-Separate: 

$55,000

Single, head of 

household, or 

qualifying widow(er): 

$75,000

Earned Income 

Tax Credit 

IRC § 32

• Child must be 

under age 19;

• child must be 

under age 24 if 

a full-time 

student; or 

• child can be 

any age if 

permanently 

and totally 

disabled.

Allows military 

serving overseas 

to claim credit.

None. Required. The 

Social Security 

number must be 

valid for 

employment.

The maximum amount 

of the credit is reduced 

at the following 

percentages for every 

dollar that AGI (or 

earned income, if 

greater) exceeds 

$22,870 for married 

joint filers or $17,530 

for single, surviving 

spouse, or head of 

household filers:

2 or more qualifying 

children: 21.06%

1 qualifying child: 

15.98%
Page 24 GAO-14-652R Tax Code Differences

Tax provision 

and code 

section Agea Residency 

requirementb Supportc

Social Security 

number 

reporting 

requirement 

for child

Income limitd and 

benefit phase out 

(reduction) 

Dependency 

Exemption

IRC §§ 151(c), 

152

• Child must be 

under age 19; 

• child must be 

under age 24 if 

a full-time 

student; or 

• child can be 

any age if 

permanently 

and totally 

disabled.

If parents are 

divorced, 

separated, or live 

apart, and the 

child is treated as 

the qualifying 

child of the 

noncustodial 

parent, only the 

noncustodial 

parent can claim 

the exemption. 

Child must not 

provide over 

half of his own 

support for the 

year.

Required, 

unless the 

dependent is an 

alien or adoptee 

without a Social 

Security 

number, in 

which case an 

alternative 

taxpayer 

identification 

number must be 

provided.

Exemption amount is 

reduced by 2% for 

each $2,500, or part 

thereof ($1,250 if 

married filing 

separately), that AGI 

exceeds the following 

amounts:

Married filing 

joint/qualifying 

widow(er): $300,000

Married filing 

separately: $150,000

Head of household:

$275,000

Single: $250,000

Sources: GAO analysis of IRS publications. |  GAO-14-652R

Notes: This table outlines some basic eligibility rules for key child-related tax benefits. Other child-related tax benefits and related 

eligibility rules exist beyond those shown in the table. Also, other differences, such as reporting requirements, exist among the 

provisions cited beyond those discussed herein. Updated information for tax year 2014 may be available; however, we report tax 

year 2013 information because we could confirm the entire table for 2013.

a

The child must be younger than the taxpayer or taxpayer’s spouse to qualify. Age is measured at the end of the year, except for the 

Child and Dependent Care Credit, which is measured at the time that care was provided.

b

The child must have lived with the taxpayer for more than half the year, except in the case of (1) temporary absence; (2) birth or 

death of child; or (3) kidnapped child.

c

IRS publication 5085 mentions other rules related to support.

d

Income calculation may differ among provisions. See table 1 for modifications to AGI. 
Page 25 GAO-14-652R Tax Code Differences

Table 5: Eligibility Rules for Selected Education Tax Benefits, Tax Year 2013

Tax provision 

and code 

section

Educational 

institution Education level Education expenses

Income limit and benefit 

phase out (reduction)

Tax benefits for tuition and related expenses 

American 

Opportunity 

Tax Credita

IRC § 25A

See table note b. Must be enrolled at 

least half-time and 

have not finished the 

first 4 years of 

higher education 

and not claimed the 

credit for more than 

4 years.c

• Tuition and required 

enrollment fees; 

• course-related 

books, supplies, and 

equipment.

Credit is reduced when 

modified adjusted gross 

income (MAGI) exceeds 

the lower limit, and 

eliminated when MAGI 

reaches or exceeds the 

upper limit, of the 

following income ranges.d 

Joint: $160,000-$180,000

Single/head of 

household/widow(er): 

$80,000-$90,000

Lifetime 

Learning Credit

IRC § 25A

See table note b. Must be a student 

enrolled in one or 

more courses at an 

eligible educational 

institution.

Tuition and required 

enrollment fees.

Credit is reduced when 

MAGI exceeds the lower 

limit, and eliminated when 

MAGI reaches or exceeds 

the upper limit, of the 

following income ranges.d 

Joint: $107,000-$127,000

Single/head of 

household/widow(er): 

$53,000-$63,000

Deduction for

Tuition and 

Related 

Expenses

IRC § 222

See table note b. Undergraduate and 

graduate students 

enrolled in one or 

more courses at an 

eligible educational 

institution.

Tuition and required fees 

in connection with 

enrollment at an 

institution of higher 

learning.

Maximum deduction is 

reduced to $2,000 when 

MAGI exceeds the lower 

limit, and eliminated when 

MAGI exceeds the upper 

limit, of the following 

income ranges.

Joint: $130,000-$160,000

Single/head of 

household/widow(er): 

$65,000-$80,000
Page 26 GAO-14-652R Tax Code Differences

Tax provision 

and code 

section

Educational 

institution Education level Education expenses

Income limit and benefit 

phase out (reduction)

Business 

Deduction for 

Work-Related 

Education 

Expenses

IRC § 162; 26 

C.F.R. § 1.162-

5

For the purpose of this 

provision, there is no 

limit to the type of 

institution that can 

provide classes for 

continuing education.

Education must be 

required by 

employer or law to 

keep present job, 

salary, or status or 

to maintain or 

improve job skills.

Expenses related to 

education that meets 

minimum 

educational 

requirements for the 

position or qualifies 

the taxpayer for a 

new trade or 

business are not 

deductible.

• Tuition and required 

enrollment fees;

• transportation and 

travel; and

• other necessary 

expenses.

Not applicable.

EmployerProvided 

Educational 

Assistance

IRC § 127

This benefit provides 

an exclusion of up to 

$5,250 for employerprovided educational 

assistance. Education 

must be provided 

under a qualified 

educational assistance 

program. To be 

qualified, a plan must 

meet certain 

requirements.

Undergraduate and 

graduate students, 

or employees taking 

any form of 

instruction or training 

that improves 

capabilities. 

• Tuition, and required 

enrollment fees; and

• course-related 

books, supplies, and 

equipment.

Does not include 

payment for or the 

provision of tools or 

supplies which may be 

retained by the employer 

after the completion of 

the course of instruction, 

or meals, lodging, or 

transportation.

Not applicable.

Tax benefits for student loans 
Page 27 GAO-14-652R Tax Code Differences

Tax provision 

and code 

section

Educational 

institution Education level Education expenses

Income limit and benefit 

phase out (reduction)

Student Loan 

Interest 

Deduction

IRC § 221

See table note b. Also 

includes institutions 

conducting an 

internship or residency 

program leading to a 

degree or certificate 

from an institution of 

higher education, a 

hospital, or a health 

care facility that offers 

postgraduate training. 

An educational 

institution must meet 

the above criteria only 

during the academic 

period(s) for which the 

loan was incurred. 

Deductibility of interest 

on the loan is not 

affected by the 

institution's 

subsequent loss of 

eligibility.

Undergraduate and 

graduate students 

who were enrolled at 

least half-time in a 

program leading to a 

degree, certificate, 

or other recognized 

educational 

institution.

• Tuition and required 

enrollment fees;

• course-related 

books, supplies, and 

equipment;

• room and board; and

• other necessary 

expenses (including 

transportation).

Deduction is reduced 

when MAGI exceeds the 

lower limit, and eliminated 

when MAGI reaches or 

exceeds the upper limit, of 

the following income 

ranges.d 

Joint: $125,000-$155,000

Single/head of 

household/widow(er): 

$60,000-$75,000

Exclusion of 

Qualifying 

Canceled 

Student Loanse

IRC § 108(f)

An educational 

institution that 

maintains a regular 

faculty and curriculum 

and normally has a 

regularly enrolled body 

of students in 

attendance at the 

place where it carries 

on its educational 

activities.

Not applicable. Not applicable. Not applicable.

Tax benefits for education savings plans 

Qualified 

Tuition 

Programs 

IRC § 529

See table note b. Undergraduate and 

graduate students 

enrolled at least halftime for the course 

of study the student 

is pursuing, as 

determined under 

the standards of the 

school where the 

student is enrolled.

• Tuition and required 

enrollment fees;

• books, supplies, and 

equipment;

• expenses for special 

needs services; and

• room and board if at 

least half-time 

student.

Not applicable.
Page 28 GAO-14-652R Tax Code Differences

Tax provision 

and code 

section

Educational 

institution Education level Education expenses

Income limit and benefit 

phase out (reduction)

Coverdell 

Education 

Savings 

Accounts 

(ESA)

IRC § 530

An eligible 

postsecondary school 

or an eligible 

elementary or 

secondary school. 

Eligible Postsecondary 

School: defined in 

table note b. 

Eligible 

elementary/secondary 

school: any public, 

private, or religious 

school that provides 

elementary or 

secondary education 

(kindergarten through 

grade12), as 

determined under state 

law.

Undergraduate and 

graduate students 

enrolled at least halftime for the course 

of study the student 

is pursuing, as 

determined under 

the standards of the 

school where the 

student is enrolled; 

and students 

enrolled in eligible 

elementary and 

secondary schools.

Higher education 

expenses:

• Tuition and required 

enrollment fees;

• books, supplies, and 

equipment;

• expenses for special 

needs services;

• payments to a 

Qualified Tuition 

Program (QTP); and

• room and board if at 

least half-time 

student.

K-12 expenses:

• Tuition and fees; 

• books, supplies, and 

equipment;

• academic tutoring;

• special needs 

services;

• room and board;

• uniforms;

• transportation; 

• required 

supplementary items 

and services; 

• purchase of a 

computer if it is used 

by the beneficiary or 

their family; and

• payments to a QTP.

Maximum contribution is 

reduced when MAGI 

exceeds the lower limit, 

and eliminated when 

MAGI reaches or exceeds

the upper limit, of the 

following income ranges.d

Joint: $190,000-$220,000f

All others: $95,000-

$110,000
Page 29 GAO-14-652R Tax Code Differences

Tax provision 

and code 

section

Educational 

institution Education level Education expenses

Income limit and benefit 

phase out (reduction)

Exception to 

Additional Tax 

for Early 

Withdrawals 

from IRAs

IRC §

72(t)(2)(E)

See table note b. Undergraduate and 

graduate students 

enrolled at least halftime for the course 

of study the student 

is pursuing, as 

determined under 

the standards of the 

school where the 

student is enrolled.

• Tuition and required 

enrollment fees;

• books, supplies, and 

equipment;

• expenses for special 

needs services; and

• room and board if at 

least half-time 

student.

Not applicable.

Education 

Savings Bonds 

Program

IRC § 135

See table note b. Enrollment or 

attendance at an 

institution of higher 

education.

• Tuition and required 

enrollment fees;

• contributions to 

Coverdell ESA; and

• contributions to a

QTP. 

Qualified education 

expenses must be 

reduced by certain taxfree benefits.

Interest exclusion is 

reduced when MAGI 

exceeds the lower limit, 

and eliminated when 

MAGI reaches or exceeds 

the upper limit, of the 

following income ranges.d

Joint/widow(er): $112,050-

$142,050

Single/head of household:

$74,700-$89,700 

Sources: GAO analysis of IRS and Joint Committee on Taxation reports. |  GAO-14-652R 

Notes: Certain provisions require modifications to adjusted gross income to determine credit amounts and phase-out ranges. See 

table 1 for income adjustments related to education tax benefits. Updated information for tax year 2014 may be available; however, 

we report tax year 2013 information because we could confirm the entire table for 2013.

a

The American Opportunity Tax Credit modifies the existing Hope Credit, increasing eligibility for the credit and making the credit 

available to taxpayers with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying 

expenses and allows the credit to be claimed for 4 years of post-secondary education instead of 2. The credit was extended through 

December 2017 by the American Taxpayer Relief Act of 2012. 

b

The definition for educational institution includes any college, university, vocational school, or other postsecondary educational 

institution eligible to participate in a student aid program administered by the U.S. Department of Education, including certain foreign 

education institutions outside of the United States. Includes accredited public, nonprofit, and privately owned for-profit 

postsecondary institutions.

c

Individuals with felony drug convictions are disqualified from this credit.

d

To determine the amount of reduced benefit, the tentative benefit amount is multiplied by a fraction. For the American Opportunity 

Tax Credit and Lifetime Learning Credit, the numerator of the fraction is the upper limit of the income range minus MAGI. For the

student loan interest deduction, Coverdell ESAs, and education savings bonds, the numerator is MAGI minus the lower limit of the 

income range. The denominator is the range of incomes for the phase out (the difference between the upper and lower limit of 

range). 

e

The exclusion applies to undergraduate and graduate student loans, and eligibility depends on the borrower’s post-graduation 

profession, place of employment, and length of time employed.

f

Income phase outs for Coverdell accounts apply to all individuals who contribute to the account (including the beneficiary).
Page 30 GAO-14-652R Tax Code Differences

Table 6: Differences in Rules and Definitions for Selected Employer-Sponsored Retirement Savings Plans, 

Tax Year 2014

Tax provision and 

code section

Maximum annual 

contribution (per 

participant)

Catch-up 

contributions

Withdrawals, 

distributions, and 

loans Rollovers/transfers

Simplified 

Employee Pension 

Plan (SEP)

IRC § 408(k)

Up to 25% of 

compensation but no 

more than $52,000.

Not applicable. Withdrawals:

Permitted any time 

subject to federal 

income taxes and

subject to a 10% 

additional tax if taken 

before age 591⁄2.

Distributions: Must 

begin receiving 

distributions by April 1 

of the year following 

attainment of age 701⁄2.

Loans: Cannot take 

loans from SEP-IRA 

plans.

Rollovers are 

permitted from one 

IRA to another and to 

eligible retirement 

plans.

Savings Incentive 

Match Plan for 

Employees 

(SIMPLE) IRA Plan

IRC § 408(p)

Employee: $12,000.

Employer:

Can match employee 

contributions 100% of 

first 3% of 

compensation (can be 

reduced to as low as 

1% in any 2 of 5 years) 

or contribute 2% of 

each eligible 

employee’s 

compensation.

Taxpayers age 50 and 

over can contribute an 

additional $2,500 per 

tax year.

Withdrawals:

Permitted any time 

subject to federal 

income taxes and 

subject to 10% 

additional tax if taken 

before age 591⁄2 (25% if 

less than 2 years of 

participation).

Distributions: Must 

begin receiving 

distributions by April 1 

of the year following 

attainment of age 701⁄2.

Loans: Cannot take 

loans from SIMPLE IRA 

plans.

Rollovers are 

permitted from one 

SIMPLE IRA to 

another SIMPLE IRA 

at any time. 

Rollovers from a 

SIMPLE IRA to a 

non-SIMPLE IRA or 

to an eligible 

retirement plan can 

be made tax-free only 

after participating in 

the SIMPLE IRA plan 

for 2 years.
Page 31 GAO-14-652R Tax Code Differences

Tax provision and 

code section

Maximum annual 

contribution (per 

participant)

Catch-up 

contributions

Withdrawals, 

distributions, and 

loans Rollovers/transfers

401(k) – Traditional, 

SIMPLE, Safe 

Harbor

IRC § 401(k)

Traditional and Safe 

Harbor:

Employee elective 

deferrals: $17,500.

Employer and 

employee: the lesser 

of $52,000 or 100% of 

compensation, subject 

to nondiscrimination 

testing.

SIMPLE:

Employee elective 

deferrals: $12,000.

Employer: dollar-fordollar match up to 3% 

of pay or a 2% nonelective contribution for 

each eligible 

employee.

Traditional and Safe 

Harbor: Taxpayers age 

50 or over can elect to 

contribute an additional 

$5,500 per tax year.

SIMPLE: Taxpayers 

age 50 or over can elect 

to contribute an 

additional $2,500 per 

tax year.

Withdrawals: Permitted 

after distributable event 

(e.g., retirement, death, 

disability, or severance 

from employment).

Distributions: Must start 

receiving distributions 

by April 1 following the 

later of year of 

retirement or attainment 

of age 701⁄2.

Loans: Plan may permit

loans and hardship 

withdrawals, and early 

withdrawals are subject 

to a 10% additional tax.

Rollovers are 

permitted to an 

eligible retirement 

plan or IRA.

403(b) – Tax 

Sheltered Annuity 

Offered by Public 

Schools and 

Certain 501(c)(3) 

Tax-Exempt 

Organizations

IRC § 403(b)

Employee elective 

deferrals: $17,500.

Employer and

employee: the lesser 

of $52,000 or 100% of 

includible 

compensation.

Taxpayers age 50 or 

over can elect to 

contribute an additional 

$5,500 per tax year.

Special 403(b) catch-up 

contribution:

• available to select 

employers;

• employee must 

have 15 years of 

service; and

• contribution is 

limited to the least 

of (a) $3,000, (b) 

$15,000 less 

previously excluded 

special catch-ups, 

and (c) $5,000 

multiplied by years 

of service minus 

previously excluded 

deferrals.

Withdrawals: Permitted 

after distributable event 

(e.g., retirement, death, 

disability, or severance 

from employment).

Distributions: Must start 

receiving distributions 

by April 1 following the 

later of year of 

retirement or attainment 

of age 701⁄2.

Loans: Plan may permit

loans and hardship 

withdrawals, and early 

withdrawals are subject 

to a 10% additional tax.

Rollovers permitted to 

an eligible retirement 

plan.

Taxpayers are 

permitted to transfer 

from one 403(b) to 

another 403(b). 
Page 32 GAO-14-652R Tax Code Differences

Tax provision and 

code section

Maximum annual 

contribution (per 

participant)

Catch-up 

contributions

Withdrawals, 

distributions, and 

loans Rollovers/transfers

457(b) –

Governmental, TaxExempt (NonChurch) 

Organizations

IRC § 457(b)

Maximum contribution 

for governmental and 

tax-exempt plans: 

$17,500.

Governmental:

Taxpayers age 50 and 

over can elect an 

additional salary 

reduction contribution of 

$5,500 per tax year.

Tax-exempt: No catchup contribution 

permitted for taxpayers 

age 50 and over.

Special 457(b) catch-up 

contributions 

(governmental and taxexempt):

Contribution must be 

made 3 years prior to 

the year of normal 

retirement age, and

special catch-up is 

limited to the lesser of: 

(a) $35,000 (twice the 

basic annual limit), or 

(b) the basic annual 

limit plus underutilized 

basic annual limit in 

prior years.

Special contribution 

cannot be taken if 

employee is currently 

making age 50 and over 

contribution. Applicable 

only to governmental.

Withdrawals: Permitted 

after severance from 

employment.

Distributions: Must start 

receiving distributions 

by April 1 following the 

later of year of 

retirement or attainment 

of age 701⁄2. 

Loans:

• Governmental:

Plan may permit 

loans and 

distribution for 

unforeseen 

emergency or small 

inactive accounts. 

• Tax-exempt: Plan 

may not permit 

loans.

Governmental: 

Rollovers are 

permitted to an 

eligible retirement 

plan.

Transfers permitted 

from one government 

457(b) to another 

government 457(b).

Tax-exempt: No 

rollovers permitted.

Post-severance 

transfers are 

permitted from one 

tax-exempt 457(b) to 

another tax-exempt 

457(b).

Sources: GAO analysis of IRS publications and IRC. |  GAO-14-652R

Note: SEPs can be sponsored by any employer. SIMPLE IRAs can be sponsored by employers with 100 or fewer employees that do 

not currently maintain another plan. Traditional 401(k) and safe harbor 401(k) plans can be sponsored by any nongovernment 

employer or governments if the plan was established before May 1986. SIMPLE 401(k) plans can be sponsored by employers with 

100 or fewer employees and no other qualified plan. 403(b) plans can be sponsored by public education employers and 501(c)(3) 

organizations. 457(b) plans can be sponsored by state and local governments and non-church tax-exempt organizations.

(451053)
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