I

104TH CONGRESS

2D SESSION H. R. 4197

To amend the Internal Revenue Code of 1986 to permit States to make

advance payments of the earned income tax credit.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 26, 1996

Mr. CAMP introduced the following bill; which was referred to the Committee

on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to permit

States to make advance payments of the earned income

tax credit.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. ADVANCE PAYMENT OF EARNED INCOME TAX

4 CREDIT THROUGH STATE DEMONSTRATION

5 PROGRAMS.

6 (a) IN GENERAL.—Section 3507 of the Internal Rev7 enue Code of 1986 (relating to the advance payment of
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1 the earned income tax credit) is amended by adding at

2 the end the following:

3 ‘‘(g) STATE ADVANCE PAYMENT PROGRAM.—

4 ‘‘(1) IN GENERAL.—In lieu of receiving earned

5 income advance amounts from an employer under

6 subsection (a), a participating resident shall receive

7 advance earned income payments from a responsible

8 State agency pursuant to a State Advance Payment

9 Program that is designated pursuant to paragraph

10 (2).

11 ‘‘(2) DESIGNATIONS.—

12 ‘‘(A) IN GENERAL.—The Secretary (in con13 sultation with the Secretary of Health and

14 Human Services) shall designate State Advance

15 Payment Programs for States submitting plans

16 that satisfy the requirements of paragraph (3).

17 The Secretary is required to approve a State

18 plan 90 days after submission to the Secretary

19 by the State, or submit to the State the reasons

20 for not approving the State plan. Administra21 tive costs of a State in conducting a State Ad22 vance Payment Program under this section may

23 be included for matching under section 403(a)

24 of the Social Security Act and section 16(a) of

25 the Food Stamp Act of 1977.
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1 ‘‘(B) PERIOD FOR WHICH DESIGNATION IS

2 IN EFFECT.—

3 ‘‘(i) IN GENERAL.—Designations

4 made under this paragraph shall be effec5 tive only after December 31, 1996.

6 ‘‘(ii) REVOCATION OF DESIGNA7 TIONS.—The Secretary may revoke a

8 State’s designation under this paragraph if

9 the Secretary determines that the State is

10 not complying substantially with the plan

11 described in paragraph (3) submitted by

12 the State.

13 ‘‘(3) STATE PLANS.—No State may be des14 ignated under paragraph (2) unless the State’s pro15 posal for such designation—

16 ‘‘(A) identifies the responsible State

17 agency,

18 ‘‘(B) describes how and when the advance

19 earned income payments will be made by that

20 agency, including a description of any other

21 State or Federal benefits with which such pay22 ments will be coordinated,

23 ‘‘(C) describes how the State will obtain

24 the information on which the amount of ad25 vance earned income payments made to each
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1 participating resident will be determined in ac2 cordance with paragraph (4),

3 ‘‘(D) describes how State residents who

4 will be eligible to receive advance earned income

5 payments will be selected, notified of the oppor6 tunity to receive advance earned income pay7 ments from the responsible State agency, and

8 given the opportunity to elect to participate in

9 the program,

10 ‘‘(E) describes how the State will verify, in

11 addition to receiving the certifications and

12 statement described in paragraph (6)(D)(iv),

13 the eligibility of participating residents for the

14 earned income tax credit,

15 ‘‘(F) commits the State to furnishing to

16 each participating resident and to the Secretary

17 by January 31 of each year a written statement

18 showing—

19 ‘‘(i) the name and taxpayer identifica20 tion number of the participating resident,

21 and

22 ‘‘(ii) the total amount of advance

23 earned income payments made to the par24 ticipating resident during the prior cal25 endar year,
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1 ‘‘(G) commits the State to furnishing to

2 the Secretary by December 1 of each year a

3 written statement showing the name and tax4 payer identification number of each participat5 ing resident, and

6 ‘‘(H) commits the State to assess the de7 velopment and implementation of its State Ad8 vance Payment Program, including an agree9 ment to share its findings and lessons with

10 other interested States in a manner to be de11 scribed by the Secretary.

12 ‘‘(4) AMOUNT AND TIMING OF ADVANCE

13 EARNED INCOME PAYMENTS.—

14 ‘‘(A) AMOUNT.—

15 ‘‘(i) IN GENERAL.—The method for

16 determining the amount of advance earned

17 income payments made to each participat18 ing resident is to conform to the full extent

19 possible with the provisions of subsection

20 (c).

21 ‘‘(ii) SPECIAL RULE.—A State may,

22 at its election, apply the rules of subsection

23 (c)(2)(B)—

24 ‘‘(I) by substituting for ‘60 per25 cent’ in such subsection a percentage
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1 between 60 percent and 75 percent

2 which is elected by the State, and

3 ‘‘(II) by using the credit percent4 age for the number of qualifying chil5 dren of the eligible individual in lieu

6 of the credit percentage specified in

7 clause (i) thereof.

8 ‘‘(B) TIMING.—The frequency of advance

9 earned income payments may be made on the

10 basis of the payroll periods of participating resi11 dents, on a single statewide schedule, or on any

12 other reasonable basis prescribed by the State

13 in its plan; however, in no event may advance

14 earned income payments be made to any par15 ticipating resident less frequently than on a cal16 endar-quarter basis.

17 ‘‘(5) PAYMENTS TO BE TREATED AS PAYMENTS

18 OF WITHHOLDING AND FICA TAXES.—

19 ‘‘(A) IN GENERAL.—For purposes of this

20 title, advance earned income payments—

21 ‘‘(i) shall neither be treated as a pay22 ment of compensation nor be included in

23 gross income, and

24 ‘‘(ii) shall be treated as made out of—
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1 ‘‘(I) amounts required to be de2 ducted and withheld by the State

3 under section 3401 (relating to wage

4 withholding) for the period (under

5 paragraph (4)(B)) on the basis of

6 which advance earned income pay7 ments are made by the State, and

8 ‘‘(II) amounts required to be de9 ducted for such period under section

10 3102 (relating to FICA employee

11 taxes), and

12 ‘‘(III) amounts of the taxes im13 posed on the State for such period

14 under section 3111 (relating to FICA

15 employer taxes),

16 as if the State had paid to the Secretary,

17 on the day on which payments are made to

18 participating residents, an amount equal to

19 such payments.

20 ‘‘(B) ADVANCE PAYMENTS EXCEED TAXES

21 DUE.—If for any period the aggregate amount

22 of advance earned income payments made by

23 the responsible State agency under a State Ad24 vance Payment Program exceeds the sum of the

25 amounts referred to in subparagraph (A)(ii),
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1 each such advance earned income payment shall

2 be reduced by an amount which bears the same

3 ratio to such excess as such advance earned in4 come payment bears to the aggregate amount

5 of all such advance earned income payments.

6 ‘‘(6) DEFINITIONS.—For purposes of this sec7 tion—

8 ‘‘(A) STATE ADVANCE PAYMENT PRO9 GRAM.—The term ‘State Advance Payment

10 Program’ means the program described in a

11 proposal submitted for designation under para12 graph (1) and designated by the Secretary

13 under paragraph (2).

14 ‘‘(B) RESPONSIBLE STATE AGENCY.—The

15 term ‘responsible State agency’ means the sin16 gle State agency that will be making the ad17 vance earned income payments to residents of

18 the State who elect to participate in a State Ad19 vance Payment Program.

20 ‘‘(C) ADVANCE EARNED INCOME PAY21 MENTS.—The term ‘advance earned income

22 payments’ means an amount paid by a respon23 sible State agency to residents of the State pur24 suant to a State Advance Payment Program.
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1 ‘‘(D) PARTICIPATING RESIDENT.—The

2 term ‘participating resident’ means an individ3 ual who—

4 ‘‘(i) is a resident of a State that has

5 in effect a designated State Advance Pay6 ment Program,

7 ‘‘(ii) makes the election described in

8 paragraph (3)(D) pursuant to guidelines

9 prescribed by the State,

10 ‘‘(iii) certifies to the State the number

11 of qualifying children the individual has,

12 and

13 ‘‘(iv) provides to the State the certifi14 cations and statement set forth in sub15 section (b) (except that paragraph (3)

16 thereof shall be applied by substituting

17 ‘any employer’ for ‘another employer’),

18 along with any other information required

19 by the State.’’.

20 (b) TECHNICAL ASSISTANCE.—The Secretary of the

21 Treasury and the Secretary of Health and Human Serv22 ices shall jointly ensure that technical assistance is pro23 vided to State Advance Payment Programs and that such

24 Programs are rigorously evaluated.
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1 (c) ANNUAL REPORTS.—The Secretary of the Treas2 ury shall issue annual reports detailing the extent to

3 which—

4 (1) residents participate in the State Advance

5 Payment Programs,

6 (2) participating residents file Federal and

7 State tax returns,

8 (3) participating residents report accurately the

9 amount of the advance earned income payments

10 made to them by the responsible State agency dur11 ing the year, and

12 (4) recipients of excessive advance earned in13 come payments repaid those amounts.

14 The report shall also contain an estimate of the amount

15 of advance earned income payments made by each respon16 sible State agency but not reported on the tax returns of

17 a participating resident and the amount of excessive ad18 vance earned income payments.

19 (d) AUTHORIZATION OF APPROPRIATIONS.—For pur20 poses of providing technical assistance described in sub21 section (b), preparing the reports described in subsection

22 (c), and providing grants to States in support of des23 ignated State Advance Payment Programs, there are au24 thorized to be appropriated in advance to the Secretary

25 of the Treasury and the Secretary of Health and Human
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1 Services a total of $1,400,000 for fiscal years 1997

2 through 2000.

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