Ann Powers, F/K/A Melanie Ann Studinger - Page 5




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              The term “earned income” is defined to mean wages, salaries,            
         tips, and other employee compensation, plus the amount of the                
         taxpayer’s net earnings from self-employment.  See sec.                      
         32(c)(2)(A); see also sec. 1.32-2(c)(2), Income Tax Regs.  Earned            
         income does not include welfare payments such as AFDC and SSI,               
         nor does earned income include Social Security disability                    
         benefits or gifts.  See sec. 32(c)(2)(A); see also sec. 1.32-                
         2(c)(2), Income Tax Regs.                                                    
              The legislative history of section 32 provides further                  
         support for our conclusion.  Thus, the legislative history                   
         demonstrates that the earned income credit was originally created            
         as an employment inducement and an offset to the Social Security             
         tax for low-income taxpayers:                                                
              Under present law an individual is not required to pay                  
              income tax unless his income exceeds the amount of the                  
              minimum standard deduction plus the sum of available                    
              personal exemptions.  Social security taxes, however,                   
              are paid on all covered earnings by workers * * * ,                     
              regardless of how small the amount of earnings.                         
              * * * it is appropriate to use the income tax system to                 
              offset the impact of the social security taxes on                       
              low-income persons * * * by adopting a refundable                       
              income tax credit against earned income.                                
                                                                                     
                              *   *   *   *   *   *   *                               


         5(...continued)                                                              
          so much of the taxpayer’s earned income for the taxable year as             
          does not exceed the earned income amount.”  (Emphasis added.)               
          Despite the complexity of this language, it is apparent that if a           
          taxpayer has no earned income, then there is no earned income               
          credit.                                                                     





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