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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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Last modified: May 25, 2011