H.R. 905 — EITC Modernization Act

This section sets forth congressional findings on the Federal Earned Income Tax Credit, including its establishment in 1975 to supplement earnings of lower- and middle-income workers below an income threshold; its benefits in increasing family income, reducing child poverty, promoting employment (including for military families), and improving children's education and health; its positive economic effects on local businesses; and the need to address income inequality (e.g., through this legislation and raising the federal minimum wage).

This section expands eligibility for the earned income tax credit (EITC) under section 32 of the Internal Revenue Code of 1986 as follows: (1) replaces references to "qualifying child" with "qualifying dependent," which includes a qualifying child, an aged dependent (i.e., a dependent under section 151 who is age 65 or older), or a qualifying individual under the child care credit (section 21(b)(1)(B) or (C)); requires the name, age, and TIN for such dependents; and limits them to those with a principal place of abode in the U.S. for more than half the year; (2) includes as eligible any qualifying student (i.e., an eligible student under section 25A at a higher education institution who is not another taxpayer's dependent and is either qualified for a Federal Pell Grant or has modified adjusted gross income below 250% of the poverty line under 42 U.S.C. 9902(2), with family size based on personal exemptions under section 151), while excluding such students from the existing "any other individual" category; (3) establishes a minimum EITC of $1,200 (before phaseout) for qualifying students or eligible individuals with a specified dependent (i.e., any qualifying dependent other than a qualifying child age 7 or older); and (4) permits taxpayers expecting an EITC-related refund exceeding $240 to elect monthly payments (2/13ths in the first or second month after filing, then 1/13th monthly for 11 months, with interest) by direct deposit, prepaid card, or other non-check method.

This section establishes a Community Volunteer Income Tax Assistance Matching Grant Program administered by the IRS to provide matching funds, subject to appropriations, for qualified return preparation programs that assist low-income taxpayers (at least 90% of clients) and underserved populations. Grants may be used for program operation costs (e.g., coordinator wages, training, equipment, rural outreach vehicles), taxpayer education on income supports such as the earned income tax credit, and financial capability services but not unrelated overhead expenses. The IRS must prioritize applications targeting low-income and underserved taxpayers; conduct site visits and accuracy reviews requiring at least 90% return accuracy and 100% quality reviews of returns prepared by trained volunteers; and limit future grants to programs that correct deficiencies. Qualified programs must be administered by a qualified entity, defined to include (1) institutions of higher education described in section 102 of the Higher Education Act of 1965 (20 U.S.C. 1002), excluding foreign institutions under subsection (a)(1)(C); (2) tax-exempt 501(c) organizations; (3) local government agencies, including Indian tribes and tribally designated housing entities; or (4) coalitions led by such entities.