Federal

Earned Income Tax Credit Equity for Puerto Rico Act of 2023

Source: Congress.gov · 531 words in original text

What This Bill Does

This bill changes federal tax law to let people who live in Puerto Rico get the earned income tax credit. The earned income tax credit is a tax break that reduces the taxes owed by people who work and earn low to moderate incomes. The bill also stops a separate federal payment program that was previously reimbursing Puerto Rico for its own earned income tax credit.

Who It Affects

Residents of Puerto Rico who work and earn income. The U.S. Treasury Department (which collects and manages federal taxes). Puerto Rico's government.

Key Provisions

• Puerto Rico residents can now qualify for the federal earned income tax credit in the same way as residents of U.S. states, with the United States being treated as including Puerto Rico for certain tax credit rules (Sec. 2(a)). • Puerto Rico residents who are nonresident aliens (people who do not have legal status as U.S. citizens or permanent residents) are exempt from certain income restrictions that would normally disqualify them from the credit (Sec. 2(a)). • When calculating income for the earned income tax credit, Puerto Rico residents' income is computed without regard to section 933, which normally excludes certain Puerto Rico source income from taxation (Sec. 2(a)). • The credit amount given to Puerto Rico residents cannot exceed what a person in the same situation would receive if living in a U.S. state (Sec. 2(a)). • The annual federal reimbursement program for Puerto Rico's earned income tax credit ends after calendar year 2023 (Sec. 2(c)).

What Changes

Puerto Rico residents gain access to the federal earned income tax credit. The federal government stops reimbursing Puerto Rico for operating its own earned income tax credit program after 2023. Puerto Rico's child tax credit rules are adjusted so they do not get reduced based on the new federal earned income tax credit provision.

Important Definitions

Earned income tax credit: A tax break that lowers the taxes owed by working people with low to moderate incomes. Adjusted gross income: Total income before certain reductions are applied. Gross income: All income received. Nonresident alien: A person who does not have legal status as a U.S. citizen or permanent resident. Taxable year: The calendar year or accounting period used for tax purposes.

Effective Date

The changes apply to taxable years beginning after December 31, 2023.

I 118TH CONGRESS 1ST SESSION H. R. 257 To amend the Internal Revenue Code of 1986 to make residents of Puerto Rico eligible for the earned income tax credit. IN THE HOUSE OF REPRESENTATIVES JANUARY 10, 2023 Miss GONZA´LEZ-COLO´N (for herself, Mr. TORRES of New York, Mr. SOTO, and Mr. MOYLAN) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1986 to make residents of Puerto Rico eligible for the earned income tax credit. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Earned Income Tax 4 Credit Equity for Puerto Rico Act of 2023’’. 5 VerDate Sep 11 2014 02:36 Jan 21, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H257.IH H257 pbinns on DSKJLVW7X2PROD with $$_JOB 2 •HR 257 IH SEC. 2. PUERTO RICO RESIDENTS ELIGIBLE FOR EARNED 1 INCOME TAX CREDIT. 2 (a) IN GENERAL.—Section 32 of the Internal Rev- 3 enue Code of 1986 is amended by adding at the end the 4 following new subsection: 5 ‘‘(n) RESIDENTS OF PUERTO RICO.— 6 ‘‘(1) IN GENERAL.—In the case of residents of 7 Puerto Rico— 8 ‘‘(A) the United States shall be treated as 9 including Puerto Rico for purposes of sub- 10 sections (c)(1)(A)(ii)(I) and (c)(3)(C), 11 ‘‘(B) subsection (c)(1)(D) shall not apply 12 to nonresident alien individuals who are resi- 13 dents of Puerto Rico, and 14 ‘‘(C) adjusted gross income and gross in- 15 come shall be computed without regard to sec- 16 tion 933 for purposes of subsections (a)(2)(B) 17 and (c)(2)(A)(i). 18 ‘‘(2) LIMITATION.—The credit allowed under 19 this section by reason of this subsection for any tax- 20 able year shall not exceed the amount, determined 21 under regulations or other guidance promulgated by 22 the Secretary, that a similarly situated taxpayer 23 would receive if residing in a State.’’. 24 (b) CHILD TAX CREDIT NOT REDUCED.—Subclause 25 (II) of section 24(d)(1)(B)(ii) of such Code is amended 26 VerDate Sep 11 2014 02:36 Jan 21, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H257.IH H257 pbinns on DSKJLVW7X2PROD with $$_JOB 3 •HR 257 IH by inserting before the period ‘‘(determined without re- 1 gard to section 32(n) in the case of residents of Puerto 2 Rico)’’. 3 (c) TERMINATION OF ANNUAL REIMBURSEMENT FOR 4 PUERTO RICO EARNED INCOME TAX CREDIT.— 5 (1) IN GENERAL.—Section 7530(a)(1) of such 6 Code is amended by striking ‘‘calendar year 2021 7 and each calendar year thereafter’’ and inserting 8 ‘‘calendar years 2021, 2022, and 2023’’. 9 (2) CONFORMING AMENDMENT.—Section 10 7530(a)(1)(B) of such Code is amended by striking 11 ‘‘in the case of calendar years 2021 through 2025, 12 the lesser of’’ and inserting ‘‘the lesser of’’. 13 (d) EFFECTIVE DATE.—The amendment made shall 14 apply to taxable years beginning after December 31, 2023. 15 Æ VerDate Sep 11 2014 02:36 Jan 21, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6301 E:\BILLS\H257.IH H257 pbinns on DSKJLVW7X2PROD with $$_JOB

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