EITC Modernization Act of 2018

To amend the Internal Revenue Code of 1986 to extend the earned income tax credit to all taxpayers with dependents and to qualifying students, and for other purposes. 1. Short title This Act may be cited as the EITC Modernization Act of 2018 2. Findings Congress finds the following: (1) The Federal earned income tax credit is a refundable tax credit for lower- and middle-income working individuals and families whose earnings are below an income threshold. (2) Since its establishment in 1975, the credit has increased family income, reduced child poverty, and promoted employment by supplementing the earnings of low-wage workers, including military families. (3) The credit has a positive impact on the education and health of children living in poverty. (4) The credit has a positive economic impact on local economies and businesses because it puts more money in the hands of low- and middle-income working people who spend the money on immediate needs, such as groceries, school supplies, car repairs, rent, and health care. (5) The widening gap between the incomes of the wealthiest Americans and those of middle- and lower-income Americans is alarming. (6) There is an urgent need to address that gap, including through measures like this legislation and by raising the Federal minimum wage which together increase the wages of working Americans, widen the path to income stability, and narrow income inequality. 3. Modifications of the earned income tax credit (a) Inclusion of individuals with qualifying dependents (1) In general Section 32(c)(1)(A) qualifying child qualifying dependent (2) Qualifying dependent defined Section 32(c)(1) of such Code is amended by striking subparagraphs (B) and (F), and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively, by redesignating subparagraph (E) as subparagraph (F), and by adding at the end the following new subparagraphs: (D) Qualifying dependent (i) The term qualifying dependent (I) a qualifying child, or (II) an aged or disabled dependent. (ii) Identification requirements The term qualifying dependent (I) the taxpayer includes the name, age, and TIN of the individual on the return of tax for the taxable year, and (II) such individual has a principal place of abode in the United States for more than one-half of such taxable year. (E) Aged or disabled dependent The term aged or disabled dependent (i) has attained the age of 65 before the close of the taxable year, or (ii) is determined to be under a disability under title II or XVI of the Social Security Act at any point during such taxable year. . (3) Conforming amendments (A) The tables in paragraphs (1) and (2) of section 32(b) of such Code are amended by striking qualifying child qualifying dependent qualifying children qualifying dependents (B) Section 32(c)(3) of such Code is amended by striking subparagraphs (C) and (D). (C) Section 32(m) of such Code is amended by striking (c)(3)(D) (c)(1)(G)(ii) (b) Inclusion of qualifying students (1) In general Section 32(c)(1)(A) or , or (iii) any individual who is a qualifying student. . (2) Qualifying student defined Section 32(c)(1) of such Code, as amended by subsection (a), is further amended by adding at the end the following new subparagraph: (G) Qualifying student The term qualifying student (i) is eligible for a Federal Pell Grant with respect to the academic year beginning in such taxable year, and (ii) is not a dependent for whom a deduction is allowable under section 151 to another taxpayer for the taxable year. . (c) Minimum credit amount for individuals with qualifying dependents and for qualifying students Section 32(a)(1) (1) Credit amount (A) In general In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the credit percentage of so much of the taxpayer’s earned income for the taxable year as does not exceed the earned income amount. (B) Minimum credit amount for individuals with dependents and for qualifying students In the case of an eligible individual described in clause (i) or (iii) of subsection (c)(1)(A), the following provisions shall be applied by inserting the greater of $1,200 or the credit percentage (i) Credit amount Subparagraph (A). (ii) Phaseout Paragraph (2)(A). . (d) Monthly payment Section 32 (n) Monthly payment (1) In general In the case of an individual entitled under this section to a refund that exceeds $240, such individual may elect to have the Secretary, in lieu of such refund, make a payment equal to— (A) 2/13 (B) 1/13 (2) Method of payment A payment made under this subsection shall be made by direct deposit or by general-use prepaid card, or by such other method (other than by check) as the Secretary may prescribe and the taxpayer may elect. (3) One-time increase The first time an individual receives a payment under this subsection, paragraph (1)(A) shall be applied by substituting 4/13 2/13 . (e) Special rule for new low-Income parents Section 32 (o) Special rule for new low-Income parents In the case of an individual who— (1) has a qualifying child, and (2) is, on the date of the birth (or adoption by such taxpayer) of such child, eligible for a payment under subsection (n)(1) to be made after the date that is one month after such date of birth or adoption by reason of a return, the amount of the subsequent payments made under subsection (n)(1) by reason of such return shall be determined as if such qualifying child were a qualifying child of the taxpayer with respect to the taxable year for which such return was filed. For purposes of determining if a child is a qualifying child for purposes of this subsection, subsection (m) shall be applied by inserting or, in the case of an adoption, such other identifying information as specified by the Secretary . (f) Decrease in minimum age for individuals without dependents Section 32(c)(1)(A)(ii)(II) age 25 age 18 (g) Return preparation programs for low-Income taxpayers (1) In general Chapter 77 7526A. Return preparation programs for low-income taxpayers (a) Establishment of volunteer income tax assistance matching grant program The Secretary, through the Internal Revenue Service, shall establish a Community Volunteer Income Tax Assistance Matching Grant Program under which the Secretary may, subject to the availability of appropriated funds, make grants to provide matching funds for the development, expansion, or continuation of qualified return preparation programs assisting low-income taxpayers and members of underserved populations. (b) Use of funds (1) In general Qualified return preparation programs may use grants received under this section for— (A) ordinary and necessary costs associated with program operation in accordance with cost principles under the applicable Office of Management and Budget circular, including— (i) wages or salaries of persons coordinating the activities of the program, (ii) developing training materials, conducting training, and performing quality reviews of the returns prepared under the program, (iii) equipment purchases, and (iv) vehicle-related expenses associated with remote or rural tax preparation services, (B) outreach and educational activities described in subsection (c)(2)(B), and (C) services related to financial education and capability, asset development, and the establishment of savings accounts in connection with tax return preparation. (2) Use of grants for overhead expenses prohibited No grant received under this section may be used for overhead expenses that are not directly related to a qualified return preparation program. (c) Application (1) In general Each applicant for a grant under this section shall submit an application to the Secretary at such time, in such manner, and containing such information as the Secretary may reasonably require. (2) Priority In awarding grants under this section, the Secretary shall give priority to applications which demonstrate— (A) assistance to low-income taxpayers, with emphasis on outreach to, and services for, such taxpayers, (B) taxpayer outreach and educational activities relating to eligibility and availability of income supports available through the Internal Revenue Code of 1986, including the earned income tax credit, and (C) specific outreach and focus on one or more underserved populations. (3) Amounts taken into account In determining matching grants under this section, the Secretary shall only take into account amounts provided by the qualified return preparation program for expenses described in subsection (b). (d) Accuracy reviews (1) In general The Secretary shall establish procedures for, and shall conduct, periodic site visits of qualified return preparation programs operating under a grant under this section— (A) to ensure such programs are carrying out the purposes of this section, and (B) to determine the return preparation accuracy rate of the program. (2) Additional requirements for grant recipients not meeting minimum standards In the case of any qualified return preparation program which— (A) is awarded a grant under this section, and (B) is subsequently determined— (i) to have a less than 90 percent average accuracy rate for preparation of tax returns, or (ii) not to be otherwise carrying out the purposes of this section, such program shall not be eligible for any additional grants under this section unless such program provides sufficient documentation of corrective measures established to address any such deficiencies determined. (e) Definitions For purposes of this section— (1) Qualified return preparation program The term qualified return preparation program (A) which provides assistance to individuals, not less than 90 percent of whom are low-income taxpayers, in preparing and filing Federal income tax returns, (B) which is administered by a qualified entity, (C) in which all volunteers who assist in the preparation of Federal income tax returns meet the training requirements prescribed by the Secretary, and (D) which uses a quality review process which reviews 100 percent of all returns. (2) Qualified entity (A) In general The term qualified entity (i) is an eligible organization, (ii) is in compliance with Federal tax filing and payment requirements, (iii) is not debarred or suspended from Federal contracts, grants, or cooperative agreements, and (iv) agrees to provide documentation to substantiate any matching funds provided pursuant to the grant program under this section. (B) Eligible organization The term eligible organization (i) an institution of higher education which is described in section 102 (other than subsection (a)(1)(C) thereof) of the Higher Education Act of 1965 ( 20 U.S.C. 1002 (ii) an organization described in section 501(c) and exempt from tax under section 501(a), (iii) a local government agency, including— (I) a county or municipal government agency, and (II) an Indian tribe, as defined in section 4(13) of the Native American Housing Assistance and Self-Determination Act of 1996 ( 25 U.S.C. 4103(13) 25 U.S.C. 4103(22) (iv) a local, State, regional, or national coalition (with one lead organization which meets the eligibility requirements of clause (i), (ii), or (iii) acting as the applicant organization), or (v) in the case of a targeted population or community with respect to which no organizations described in the preceding clauses are available— (I) a State government agency, or (II) an office providing Cooperative Extension services (as established at the land-grant colleges and universities under the Smith-Lever Act of May 8, 1914). (3) Low-income taxpayers The term low-income taxpayer (4) Underserved population The term underserved population (f) Special rules and limitations (1) Duration of grants Upon application of a qualified return preparation program, the Secretary is authorized to award a multi-year grant not to exceed 3 years. (2) Aggregate limitation Unless otherwise provided by specific appropriation, the Secretary shall not allocate more than $30,000,000 per fiscal year (exclusive of costs of administering the program) to grants under this section. (g) Promotion and referral (1) Promotion The Secretary shall promote tax preparation through qualified return preparation programs through the use of mass communications, referrals, and other means. (2) Internal revenue service referrals The Secretary may refer taxpayers to qualified return preparation programs receiving grants under this section. (3) Vita grantee referral Qualified return preparation programs receiving a grant under this section are encouraged to refer, as appropriate, to local or regional Low-Income Taxpayer Clinics individuals who are eligible for such clinics. . (2) Clerical amendment The table of sections for chapter 77 is amended by inserting after the item relating to section 7526 the following new item: 7526A. Return preparation programs for low-income taxpayers. . (h) Effective date The amendments made by this section shall apply with respect to taxable years beginning after December 31, 2018.

Summary: EITC Modernization Act of 2018 This bill modifies the Earned Income Tax Credit (EITC) to: (1) make certain individuals who are college students or have an aged or disabled dependent eligible for the credit, (2) specify minimum credit amounts for the qualifying students and individuals with an aged or disabled dependent, (3) allow certain EITC recipients to elect to receive the credit payments monthly, and (4) decrease from 25 to 18 the minimum age of eligibility for individuals without dependents. The bill also requires the Internal Revenue Service to establish a Community Volunteer Income Tax Assistance Matching Grant Program to provide matching funds for the development, expansion, or continuation of tax preparation programs to assist low-income taxpayers and members of underserved populations.