Douglas daily dispatch., 1926-04-27
OF ARIZONA INTERNAL
REVENUE DEPARTMENT EXPLAINS
PROPER EARNED INCOME CREDIT

The following statement issued by
the collector of internal revenue of
of the district of Arizona relates to
the 25 per cent credit allowed on
earned income under the revenue act
of 1926, showing by example, the
| proper method of computation. Nu-
merous inquiries have been received
by the bureau of internal revenue
concerning this question. BY order
of the commissioner of internal reve-
nue. under date of February rs, 1925,
individuals whose net income for the
year 1925 exceeded $4,000, and do
nestle corporations, were given an
extension until May Is, 1926, in which
to file a complete return.
In the allowance of the 25 per cent
credit for earned income, the surtax
is taken into consideration for the
first time under the revenue act of
1926. Many taxpayers whose net in
come for 1925 exceeded $4,000 and who
are granted until May Is, 1926 to
file a complete return-a tentative
ISIuIH HdNllS Ue6u IGAullON Oii "
before March 15-are inquiring as to
this feature of the law.
Under the new act, the maximum
amount which may be claimed as
earned income is increased from $1O,-
900 to $4,000. Earned income is de-
fined as wages, salaries, profess
sional fees, and other amounts re-
ceived as compensation for services
actually rendered" However, for the
purpose of the 25 per cent credit all
net income up to $4,000 is considered
to be earned income. A taxpayer
may have received in 1925 a salary
of $4,000 and from a real estate tran
saction net profit of $4,000. Never
theless, the entire $4,000 is considered
as earned income. Following are ex-
amples of how the earned income
credit should be computed:
A taxpayer, unmarried and with no
dependents, received in 1925 net in
come from salary of $4,000.
Net income S5,OOO.OU
Less personal exemption -. 100000
Balance taxable IL per cent. $3,5OO.00
IL per cent of $500 ........$ $3.50
Less n of $3.50 earned in
come credit ........ 1913
Balance of tax payable ...$ 1897
A taxpayer, married and without
dependent, received in 1925 a salary
of $4,000, and from a real estate tran
saction made net profit of $4,000.
Net income ................. $S,O0O.OO
Less personal exemption 3,500.OO
Balance taxable income ......$4, 10000
1h per cent on first $40O0,..$ 5000
per cent on remaining $780,. 1900
Total tax ....!...........$ 1900
But of the $4,000 net income $4,000
is considered as earned net income.
From $4,000. therefore, is deducted
the personal exemption of $500, the
tax on the remaining $500 at 1 " per
cent amounting to $22.5O. Deduct
one-fourth of $22.5O' or 5.63 from SIS,
leaving an actual tax of $69.37.
In no case is the earned income
considered to be in excess of 100000
for the purpose of the 25 per cent
credit The tax on such an income,
in which the surtax is included, is
computed as follows in the case of a
married man without dependents:
Net income .....E.. $20,O 90
Less personal exemption -. S,5OO.OO
Balance taxable SIS, 500 90
liz per cent on first $4000..$ 5000
per cent on second $4,000. 10000
5 per cent on remaining $500 425.0O
Surtax on net income of
100000 $4,000
Total normal and surtax. $500
Less n of 1926 earned in
come credit .............$ 2O625
Balance of tax payable. rs 61S75
3 In computing earned income, con-