EITC Modernization Act
Bill: H.R.174 | Sponsor: Rep. Watson Coleman, Bonnie (D-NJ)
Policy area: Taxation

Summary:
EITC Modernization Act
This bill extends the earned income tax credit to taxpayers with certain dependents, including children and aged dependents, and to qualifying students. It also establishes a matching grant program for tax return preparation assistance for low-income taxpayers.

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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``EITC Modernization Act''.

SEC. 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.

SEC. 3. MODIFICATIONS OF THE EARNED INCOME TAX CREDIT.

    (a) Inclusion of Individuals With Qualifying Dependents.--
            (1) In general.--Section 32(c)(1) of the Internal Revenue 
        Code of 1986 is amended--
                    (A) in subparagraph (A), by striking ``qualifying 
                child'' each place such term appears and inserting 
                ``qualifying dependent'', and
                    (B) by striking subparagraphs (B) and (F) and by 
                redesignating subparagraphs (C), (D), and (E) as 
                subparagraphs (B), (C), and (D), respectively.
            (2) Qualifying dependent defined.--Section 32(c) of such 
        Code is amended by redesignating paragraphs (3) and (4) as 
        paragraphs (5) and (6), and by inserting after paragraph (2) 
        the following new paragraphs:
            ``(3) Qualifying dependent.--
                    ``(A) In general.--The term `qualifying dependent' 
                means, with respect to a taxable year--
                            ``(i) a qualifying child,
                            ``(ii) an aged dependent, or
                            ``(iii) a qualifying individual described 
                        in subparagraph (B) or (C) of section 21(b)(1).
                    ``(B) Identification requirements.--No credit shall 
                be allowed under this section with respect to a 
                qualifying dependent unless the taxpayer includes the 
                name, age, and TIN of the individual on the return of 
                tax for the taxable year.
                    ``(C) Place of abode.--The term `qualifying 
                dependent' shall not include an individual unless such 
                individual has a principal place of abode in the United 
                States for more than one-half of such taxable year.
            ``(4) Aged dependent.--The term `aged dependent' means a 
        dependent for whom a deduction is allowable under section 151 
        who has attained the age of 65 before the close of the taxable 
        year.''.
            (3) Conforming amendments.--
                    (A) The tables in paragraphs (1) and (2) of section 
                32(b) of such Code are each amended--
                            (i) by striking ``qualifying child'' each 
                        place it appears and inserting ``qualifying 
                        dependent'', and
                            (ii) by striking ``qualifying children'' 
                        each place it appears and inserting 
                        ``qualifying dependents''.
                    (B) Section 32(c)(5) of such Code, as redesignated 
                by this Act, is amended by striking subparagraphs (C) 
                and (D).
                    (C) Section 32(m) of such Code is amended by 
                striking ``(c)(3)(D)'' and inserting ``(c)(3)(B)''.
    (b) Inclusion of Qualifying Students.--
            (1) In general.--Section 32(c)(1)(A) of such Code is 
        amended by striking ``or'' at the end of clause (i), by 
        striking the period at the end of clause (ii)(III) and 
        inserting ``, or'', and by inserting after clause (ii)(III) the 
        following new clause:
                            ``(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:
                    ``(E) Qualifying student.--The term `qualifying 
                student' means, with respect to a taxable year, an 
                individual who is an eligible student (as defined in 
                section 25A(b)(3)) with respect to an institution of 
                higher education (as defined in section 101 of the 
                Higher Education Act of 1965) who--
                            ``(i) is not a dependent for whom a 
                        deduction is allowable under section 151 to 
                        another taxpayer for any taxable year beginning 
                        in the same calendar year as such taxable year, 
                        and
                            ``(ii) either--
                                    ``(I) is qualified for a Federal 
                                Pell Grant with respect to the academic 
                                year beginning in such taxable year, or
                                    ``(II) has modified adjusted gross 
                                income of less than 250 percent of the 
                                poverty line for the size of the family 
                                involved for the taxable year.
                    ``(F) Definitions.--For purposes of this 
                subparagraph:
                            ``(i) Modified adjusted gross income.--The 
                        term `modified adjusted gross income' means the 
                        adjusted gross income of the taxpayer for the 
                        taxable year increased by any amount excluded 
                        from gross income under section 911, 931, or 
                        933.
                            ``(ii) Poverty line.--
                                    ``(I) In general.--The term 
                                `poverty line' has the meaning given 
                                such term in section 673(2) of the 
                                Community Services Block Grant Act (42 
                                U.S.C. 9902(2)), including any revision 
                                required by such section.
                                    ``(II) Family size.--For purposes 
                                of determining the poverty line 
                                applicable to the taxpayer, the family 
                                size with respect to any taxpayer shall 
                                be equal to the number of individuals 
                                for whom the taxpayer is allowed a 
                                deduction under section 151 (relating 
                                to allowance of deduction for personal 
                                exemptions) for the taxable year.''.
            (3) Conforming amendment.--Section 32(c)(1)(A)(ii) of such 
        Code is amended by inserting ``(other than a qualifying 
        student)'' after ``any other individual''.
    (c) Minimum Credit for Students and for Individuals With Certain 
Qualifying Dependents.--Section 32(a) of such Code is amended by adding 
at the end the following new paragraph:
            ``(3) Minimum credit for students and for individuals with 
        certain qualifying dependents.--
                    ``(A) In general.--In the case of a qualifying 
                student, or an eligible individual who has a specified 
                dependent for the taxable year, the amount determined 
                under paragraph (1) (before the application of 
                paragraph (2)) and the amount determined under 
                paragraph (2)(A) shall not be less than $1,200.
                    ``(B) Specified dependent.--For purposes of this 
                paragraph, the term `specified dependent' means any 
                qualifying dependent (other than a qualifying child who 
                has attained the age of 7 before the close of the 
                taxable year).''.
    (d) Monthly Payment.--Section 32 of such Code, as amended by this 
Act, is further amended by adding at the end the following new 
subsection:
    ``(n) Monthly Payment.--
            ``(1) In general.--In the case of an individual who is 
        entitled to a refund relating to an overpayment of tax imposed 
        by this subtitle that exceeds $240 (but only to the extent such 
        refund does not exceed the credit allowed under this section) 
        such individual may elect to have the Secretary, in lieu of 
        such refund, make a payment equal to--
                    ``(A) \2/13\ of such refund (with interest) during 
                the earlier of the first practicable month or the 
                second month that begins after the date the return was 
                filed, and
                    ``(B) \1/13\ of such refund (with interest) during 
                each of the 11 months subsequent to the month 
                determined under subparagraph (A).
            ``(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\' for `\2/13\'.''.
    (e) Special Rule for New Low-Income Parents.--Section 32 of such 
Code, as amended by this Act, is further amended by adding at the end 
the following new subsection:
    ``(o) Special Rule for New Low-Income Parents.--
            ``(1) In general.--In the case of an individual who--
                    ``(A) is eligible for payments under subsection 
                (o)(1) with respect to a refund for a taxable year, and
                    ``(B) has a qualifying child who is born or adopted 
                during the following taxable year and not later than 
                the penultimate month for which the taxpayer is 
                eligible for such payments,
        the amount of any such payments made after such birth or 
        adoption shall be adjusted to the amount such payments would be 
        if such qualifying child were a qualifying child of the 
        taxpayer under this section for the taxable year to which such 
        payments relate.
            ``(2) Qualifying child determination.--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' before the period at 
        the end.''.
    (f) Age of Eligible Individuals Without Dependents.--Section 
32(c)(1)(A)(ii)(II) of such Code is amended by striking ``age 25 but 
not attained age 65'' and inserting ``age 18''.
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 4. RETURN PREPARATION PROGRAMS FOR LOW-INCOME TAXPAYERS.

    (a) In General.--Chapter 77 of such Code is amended by inserting 
after section 7526A the following new section:

``SEC. 7526B. 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' means any 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' 
                means any entity which--
                            ``(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' means--
                            ``(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), as in 
                        effect on the date of the enactment of this 
                        section, and which has not been disqualified 
                        from participating in a program under title IV 
                        of such Act,
                            ``(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)), including any tribally 
                                designated housing entity (as defined 
                                in section 4(22) of such Act (25 U.S.C. 
                                4103(22))), tribal subsidiary, 
                                subdivision, or other wholly owned 
                                tribal entity,
                            ``(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' 
        means a taxpayer whose income for the taxable year does not 
        exceed an amount equal to the completed phaseout amount under 
        section 32(b) for a married couple filing a joint return with 3 
        or more qualifying children, as determined in a revenue 
        procedure or other published guidance.
            ``(4) Underserved population.--The term `underserved 
        population' includes populations of persons with disabilities, 
        persons with limited English proficiency, Native Americans, 
        individuals living in rural areas, members of the Armed Forces 
        and their spouses, and the elderly.
    ``(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.''.
    (b) Clerical Amendment.--The table of sections for chapter 77 is 
amended by inserting after the item relating to section 7526A the 
following new item:

``7526B. Return preparation programs for low-income taxpayers.''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to taxable years beginning after the date of 
enactment of this Act.
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