Page:United States Statutes at Large Volume 52.djvu/507

 PUBLIC LAWS-CH. 289-MAY 28, 1938 Tax withheld on tax- free covenant bonds. Post, p. 511. Credits of individu- al against net income. Normal tax only. Interest on United States obligations. Ante, p. 457. Interest on obliga- tions of instrumentali- ties of United States. Ante, p. 457. Earned Income credit. Earned income defi- nitions. "Earned income." 'Earned income de- ductions. " "Earned net in- come." shrinkage (by whatever name called) in the value of such interest due to the lapse of time, nor by any deduction allowed by this Act (except the deductions provided for in subsections (1) and (m) of section 23) for the purpose of computing the net income of an estate or trust but not allowed under the laws of such State, Territory, District of Columbia, possession of the United States, or foreign country for the purpose of computing the income to which such holder is entitled. (e) TAX WITHHELD ON TAX-FREE COVENANT BONDS. -For nonde- ductibility of tax withheld on tax-free covenant bonds, see section 143 (a) (3). SEC. 25. CREDITS OF INDIVIDUAL AGAINST NET INCOME. (a) CREDITS FOR NORMAL TAX ONLY. -T here shall be allowed for the purpose of the normal tax, but not for the surtax, the following credits against the net income: (1) INTEREST ON UNITED STATES OBLIGATIONS.- The amount received as interest upon obligations of the United States which is included in gross income under section 22. (2) INTEREST ON OBLIGATIONS OF INSTRUMENTALITIES OF THE UNITED STATEs. -T he amount received as interest on obligations of a corporation organized under Act of Congress, if (A) such corporation is an instrumentality of the United States; and (B) such interest is included in gross income under section 22; and (C) under the Act authorizing the issue thereof, as amended and supplemented, such interest is exempt from normal tax. (3) EARNED INCOME CREDIT. -10 per centum of the amount of the earned net income, but not in excess of 10 per centum of the amount of the net income. (4) EARNED INCOME DEFINITINS.-For the purposes of this section- (A) "Earned income" means wages, salaries, professional fees, and other amounts received as compensation for per- sonal services actually rendered, but does not include any amount not included in gross income, nor that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a dis- tribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. In the case of a taxpayer engaged in a trade or business in which both personal services and capital are material income producing factors, a reasonable allowance as compensation for the personal services actually rendered by the taxpayer, not in excess of 20 per centum of his share of the net profits of such trade or business, shall be considered as earned income. (B) "Earned income deductions" means such deductions as are allowed by section 23 for the purpose of computing net income, and are properly allocable to or chargeable against earned income. (C) "Earned net income" means the excess of the amount of the earned income over the sum of the earned income deductions. If the taxpayer's net income is not more than $3,000, his entire net income shall be considered to be earned net income, and if his net income is more than $3,000, his earned net income shall not be considered to be less than $3,000. In no case shall the earned net income be considered to be more than $14,000. 466 [52 STAT.

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