employed in jobs related to the provision of child day care services in one or more child day care facilities of such provider, shall be deemed for purposes of section 2002 to constitute expenditures made by the State in accordance with the provisions of this title for the provision of child day care services.

(b) The provisions of subsection (a) shall not be applicable with respect to any grant made to a particular qualified provider of child day care services to the extent that (as determined by the Secretary) such grant is or will be used to pay wages to any employee at an annual rate in excess of $6,000, in the case of a public or nonprofit private provider, or at an annual rate in excess of $5,000, or to pay more than 80 percent of the wages of any employee, in the case of any other provider.

(c) For purposes of this subsection

(1) the term "qualified provider of child day care services", when used in reference to a recipient of a grant by a State, includes a provider of such services only if, of the total number of children receiving such services from such provider in the facility with respect to which the grant is made, at least 20 percent thereof have some or all of the costs for the child day care services so furnished to them by such provider paid for under a program conducted pursuant to this title; and

(2) the term "work incentive program expenses" means expenses of a qualified provider of child day care services which constitute work incentive program expenses as defined in section 50B (a)(1) of the Internal Revenue Code of 1954, or which would constitute work incentive program expenses as so defined if the provider were a taxpayer entitled to a credit (with respect to the wages involved) under section 40 of such Code.

(Page 557 follows)

SELECTED PROVISIONS OF THE INTERNAL REVENUE CODE OF 1954

SEC. 43. EARNED INCOME, 1

(a) ALLOWANCE OF CREDIT.-In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to 10 percent of so much of the earned income for the taxable year as does not exceed $5,000. (b) LIMITATION.-The amount of the credit allowable to a taxpayer under subsection (a) for any taxable year shall not exceed the excess (if any) of—

(1) $500, over

(2) 12.5 percent of so much of the adjusted gross income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds $6,000.

(c) DEFINITION.-For purposes of this section

(1) ELIGIBLE INDIVIDUAL.—

(A) IN GENERAL.-The term "eligible individual" means an individual who, for the taxable year

(i) is married (within the meaning of section 143) and is entitled to a deduction under section 151 for a child (within the meaning of section 151 (e) (3)),

(ii) is a surviving spouse (as determined under section 2(a)), or

(iii) is a head of a household (as determined under subsection (b) of section 2 without regard to subparagraphs (A) (ii) and (B) of paragraph (1) of such subsection).

1 Section 43 was added by section 204 of Public Law 94-12 and amended by section 2 of Public Law 94-164, section 401 (c) of Public Law 94-455, section 103(b) of Public Law 95-30, and sections 103-105 of Public Law 95-600.

(557)

(B) CHILD MUST RESIDE WITH TAXPAYER IN THE UNITED STATES.-An individual shall be treated as satisfying clause (i) of subparagraph (A) only if the child has the same principal place of abode as the individual and such abode is in the United States. An individual shall be treated as satisfying clause (ii) or (iii) of subparagraph (A) only if the household in question is in the United States.

(C) INDIVIDUAL WHO CLAIMS BENEFITS OF SECTION 911 OR 931 NOT ELIGIBLE INDIVIDUAL.—The term "eligible individual" does not include an individual who, for the taxable year, claims the benefits of

(i) section 911 (relating to citizens or residents of the United States living abroad),

(ii) section 931 (relating to income from sources within possessions of the United States).1

(2) EARNED INCOME.

(A) The term "earned income" means—

(i) wages, salaries, tips, and other employee compensation, plus

(ii) the amount of the taxpayer's net earnings from self-employment for the taxable year (within the meaning of section 1402(a)).

(B) For purposes of subparagraph (A)—

(i) the earned income of an individual shall be computed without regard to any community property laws, (ii) no amount received as a pension or annuity shall be taken into account, and

(iii) no amount to which section 871(a) applies (relating to income of nonresident alien individuals not connected with United States business) shall be taken into account.

(d) MARRIED INDIVIDUALS.-In the case of an individual who is married (within the meaning of section 143), this section shall apply only if a joint return is filed for the taxable year under section 6013.

(e) TAXABLE YEAR MUST BE FULL TAXABLE YEAR.-Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.

(f) AMOUNT OF CREDIT TO BE DETERMINED UNDER TABLES.(1) IN GENERAL-The amount of the credit allowed by this section shall be determined under tables prescribed by the Secretary.

1 Subpar. (C) was amended by sec. 101 of P.L. 96-222, and by secs. 111(b) and 112(b) of P.L. 97-34.

(2) REQUIREMENTS FOR TABLES.-The tables prescribed under paragraph (1) shall reflect the provisions of subsections (a) and (b) and shall have income brackets of not greater than $50 each

(A) for earned income between $0 and $10,000, and

(B) for adjusted gross income between $6,000 and $10,000.

(g) COORDINATION WITH ADVANCE PAYMENTS OF EARNED INCOME CREDIT.

(1) RECAPTURE OF EXCESS ADVANCE PAYMENTS.-If any payment is made to the individual by an employer under section 3507 during any calendar year, then the tax imposed by this chapter for the individual's last taxable year beginning in such calendar year shall be increased by the aggregate amount of such payments.

(2) RECONCILIATION OF PAYMENTS ADVANCED AND CREDIT ALLOWED.-Any increase in tax under paragraph (1) shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit (other than the credit allowed by subsection (a)) allowable under this subpart.1