648
tion under this paragraph (2) and
rendering paragraph (5)(A)(ii) inap-
plicable to subsequent payments.
‘‘(3) PROPOSALS.—No State may be designated
under subsection (g)(2) unless the State’s proposal
for such designation—
‘‘(A) identifies the responsible State agen-
cy,
‘‘(B) describes how and when the advance
earned income payments will be made by that
agency, including a description of any other
State or Federal benefits with which such pay-
ments will be coordinated,
‘‘(C) describes how the State will obtain
the information on which the amount of ad-
vance earned income payments made to each
participating resident will be determined in ac-
cordance with paragraph (4),
‘‘(D) describes how State residents who
will be eligible to receive advance earned income
payments will be selected, notified of the oppor-
tunity to receive advance earned income pay-
ments from the responsible State agency, and
given the opportunity to elect to participate in
the program,
649
‘‘(E) describes how the State will verify, in
addition to receiving the certifications and
statement described in paragraph (7)(D)(iv),
the eligibility of participating residents for the
earned tax credit,
‘‘(F) commits the State to furnishing to
each participating resident and to the Secretary
by January 31 of each year a written statement
showing—
‘‘(i) the name and taxpayer identifica-
tion number of the participating resident,
and
‘‘(ii) the total amount of advance
earned income payments made to the par-
ticipating resident during the prior cal-
endar year,
‘‘(G) commits the State to furnishing to
the Secretary by December 1 of each year a
written statement showing the name and tax-
payer identification number of each participat-
ing resident,
‘‘(H) commits the State to treat the ad-
vanced earned income payments as described in
subsection (g)(5) and any repayments of exces-
650
sive advance earned income payments as de-
scribed in subsection (g)(6),
‘‘(I) commits the State to assess the devel-
opment and implementation of its State Ad-
vance Payment Program, including an agree-
ment to share its findings and lessons with
other interested States in a manner to be de-
scribed by the Secretary, and
‘‘(J) is submitted to the Secretary on or
before June 30, 1995.
‘‘(4) AMOUNT
AND
TIMING
OF
ADVANCE
EARNED INCOME PAYMENTS.—
‘‘(A) AMOUNT.—
‘‘(i) IN
GENERAL.—The method for
determining the amount of advance earned
income payments made to each participat-
ing resident is to conform to the full extent
possible with the provisions of subsection
(c).
‘‘(ii) SPECIAL RULE.—A State may,
at its election, apply the rules of subsection
(c)(2)(B) by substituting ‘between 60 per-
cent and 75 percent of the credit percent-
age in effect under section 32(b)(1) for an
individual with the corresponding number
651
of qualifying children’ for ‘60 percent of
the credit percentage in effect under sec-
tion 32(b)(1) for such an eligible individual
with 1 qualifying child’ in clause (i) and
‘the same percentage (as applied in clause
(i))’ for ‘60 percent’ in clause (ii).
‘‘(B) TIMING.—The frequency of advance
earned income payments may be made on the
basis of the payroll periods of participating resi-
dents, on a single statewide schedule, or on any
other reasonable basis prescribed by the State
in its proposal; however, in no event may ad-
vance earned income payments be made to any
participating resident less frequently than on a
calendar-quarter basis.
‘‘(5) PAYMENTS TO BE TREATED AS PAYMENTS
OF WITHHOLDING AND FICA TAXES.—
‘‘(A) IN GENERAL.—For purposes of this
title, advance earned income payments during
any calendar quarter—
‘‘(i) shall neither be treated as a pay-
ment of compensation nor be included in
gross income, and
‘‘(ii) shall be treated as made out of—
652
‘‘(I) amounts required to be de-
ducted by the State and withheld for
the calendar quarter by the State
under section 3401 (relating to wage
withholding), and
‘‘(II) amounts required to be de-
ducted for the calendar quarter under
section 3102 (relating to FICA em-
ployee taxes), and
‘‘(III) amounts of the taxes im-
posed on the State for the calendar
quarter under section 3111 (relating
to FICA employer taxes),
as if the State had paid to the Secretary,
on the day on which payments are made to
participating residents, an amount equal to
such payments.
‘‘(B) ADVANCE PAYMENTS EXCEED TAXES
DUE.—If for any calendar quarter the aggre-
gate amount of advance earned income pay-
ments made by the responsible State agency
under a State Advance Payment Program ex-
ceeds the sum of the amounts referred to in
subparagraph (A)(ii) (without regard to para-
graph (6)(A)), each such advance earned in-
653
come payment shall be reduced by an amount
which bears the same ratio to such excess as
such advance earned income payment bears to
the aggregate amount of all such advance
earned income payments.
‘‘(6) STATE
REPAYMENT
OF
EXCESSIVE
AD-
VANCE EARNED INCOME PAYMENTS.—
‘‘(A) IN GENERAL.—Notwithstanding any
other provision of law, in the case of an exces-
sive advance earned income payment a State
shall be treated as having deducted and with-
held under section 3401 (relating to wage with-
holding), and therefore is required to pay to the
United States, the repayment amount during
the repayment calendar quarter.
‘‘(B) EXCESSIVE
ADVANCE
EARNED
IN-
COME PAYMENT.—For purposes of this section,
an excessive advance income payment is that
portion of any advance earned income payment
that, when combined with other advance earned
income payments previously made to the same
participating resident during the same calendar
year, exceeds the amount of earned income tax
credit to which that participating resident is en-
titled under section 32 for that year.
654
‘‘(C) REPAYMENT
AMOUNT.—The repay-
ment amount is equal to 50 percent of the ex-
cess of—
‘‘(i) excessive advance earned income
payments made by a State during a par-
ticular calendar year, over
‘‘(ii) the sum of—
‘‘(I) 4 percent of all advance
earned income payments made by the
State during that calendar year, and
‘‘(II) 
the 
excessive 
advance
earned income payments made by the
State during that calendar year that
have been collected from participating
residents by the Secretary.
‘‘(D) REPAYMENT CALENDAR QUARTER.—
The repayment calendar quarter is the second
calendar quarter of the third calendar year
after the calendar year in which an excessive
earned income payment is made.
‘‘(7) DEFINITIONS.—For purposes of this sec-
tion—
‘‘(A) STATE
ADVANCE
PAYMENT
PRO-
GRAM.—The term ‘State Advance Payment
Program’ means the program described in a
655
proposal submitted for designation under para-
graph (1) and designated by the Secretary
under paragraph (2).
‘‘(B) RESPONSIBLE STATE AGENCY.—The
term ‘responsible State agency’ means the sin-
gle State agency that will be making the ad-
vance earned income payments to residents of
the State who elect to participate in a State Ad-
vance Payment Program.
‘‘(C) ADVANCE
EARNED
INCOME
PAY-
MENTS.—The term ‘advance earned income
payments’ means an amount paid by a respon-
sible State agency to residents of the State pur-
suant to a State Advance Payment Program.
‘‘(D) 
PARTICIPATING
RESIDENT.—The
term ‘participating resident’ means an individ-
ual who—
‘‘(i) is a resident of a State that has
in effect a designated State Advance Pay-
ment Program,
‘‘(ii) makes the election described in
paragraph (3)(C) pursuant to guidelines
prescribed by the State,
656
‘‘(iii) certifies to the State the number
of qualifying children the individual has,
and
‘‘(iv) provides to the State the certifi-
cations and statement set forth in sub-
sections (b)(1), (b)(2), (b)(3), and (b)(4)
(except that for purposes of this clause
(iv), the term ‘any employer’ shall be sub-
stituted for ‘another employer’ in sub-
section (b)(3)), along with any other infor-
mation required by the State.’’.
(b) TECHNICAL ASSISTANCE.—The Secretaries of
Treasury and Health and Human Services shall jointly en-
sure that technical assistance is provided to State Advance
Payment Programs and that these programs are rigor-
ously evaluated.
(c) ANNUAL REPORTS.—The Secretary shall issue
annual reports detailing the extent to which—
(1) residents participate in the State Advance
Payment Programs,
(2) participating residents file Federal and
State tax returns,
(3) participating residents report accurately the
amount of the advance earned income payments
657
made to them by the responsible State agency dur-
ing the year, and
(4) recipients of excessive advance earned in-
come payments repaid those amounts.
The report shall also contain an estimate of the amount
of advance earned income payments made by each respon-
sible State agency but not reported on the tax returns of
a participating resident and the amount of excessive ad-
vance earned income payments.
(d) AUTHORIZATION OF APPROPRIATIONS.—For pur-
poses of providing technical assistance described in sub-
section (b), preparing the reports described in subsection
(c), and providing grants to States in support of des-
ignated State Advance Payment Programs, there are au-
thorized to be appropriated in advance to the Secretary
of the Treasury and the Secretary of Health and Human
Services a total of $1,400,000 for fiscal years 1996
through 1999.