IRS ADJUSTS CREDIT AND EXCLUSION PHASE-OUT AMOUNTS.

Rev. Proc. 91-46

SECTION 1. PURPOSE

Rev. Proc. 90-64, 1990-2 C.B. 674, sets forth the inflation adjustments for taxable years beginning in 1991 for certain income tax provisions of the Internal Revenue Code. This revenue procedure modifies the adjustments set forth in Rev. Proc. 90-64 for (1) the earned income credit provided in section 32 of the Code, and (2) the exclusion of income from the redemption of United States savings bonds provided in section 135 for taxpayers who pay qualified higher education expenses.

SEC. 2. THE BASIC EARNED INCOME CREDIT, THE SUPPLEMENTAL YOUNG CHILD CREDIT, AND THE HEALTH INSURANCE CREDIT

Section 5 of Rev. Proc. 90-64, which is headed "1991 Earned Income Credit," is modified by replacing sections 5.03, 5.04, and 5.05, and adding new section 5.06, as follows.

03 For calendar years beginning in 1991, the maximum basic earned income credit will be $1,192 [.167 x $7,140] for a taxpayer with one qualifying child and $1,235 [.173 x $7,140] for a taxpayer with two or more qualifying children. The credit phases out at a rate of 11.93 percent for a taxpayer with one qualifying child and 12.36 percent for a taxpayer with two or more qualifying children.

04 For calendar years beginning in 1991, the maximum supplemental young child credit will be $357 [.05 x $7,140]. The credit phases out at a rate of 3.57 percent.

05 For calendar years beginning in 1991, the maximum health insurance credit will be $428 [.06 x $7,140]. The credit phases out at a rate of 4.285 percent.

06 The Internal Revenue Service will prescribe tables showing the amount of the basic earned income credit, the supplemental young child credit, and the health insurance credit. The tables will phase out the credits completely at $21,250 of adjusted gross income, or earned income, as the case may be.

SEC. 3. THE UNITED STATES SAVINGS BOND EXCLUSION

Section 7 of Rev. Proc. 90-64, which is headed "Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses," is modified to provide the following:

Section 135 of the Code provides an exclusion of income from the redemption of United States savings bonds for taxpayers who pay qualified higher education expenses. For tax years beginning in 1991, the exclusion is phased out under section 135(b)(2) if the taxpayer's modified adjusted gross income exceeds $41,950 ($62,900 in the case of a joint return). The amount of the reduction is calculated by multiplying the amount otherwise excludable by a fraction. The numerator of the fraction is the excess of the taxpayer's modified adjusted gross income over the threshold amount ($41,950 or $62,900 in the case of a joint return) and the denominator is $15,000 ($30,000 in the case of a joint return).

Section 8 of the revenue procedure, which is headed "Computation of Inflation Adjustments," is modified to provide the following:

05 Section 135(b)(2)(B) of the Code provides that the dollar amount at which the phaseout of the exclusion (of income from the redemption of United States savings bonds for taxpayers who pay qualified higher education expenses) begins is adjusted for inflation under the method described in section 1(f)(3). The preceding calendar year's CPI is compared with the CPI for the calendar year 1989. The adjusted dollar amount is rounded to the nearest multiple of $50 (if the adjusted figure is a multiple of $25, it is increased to the next highest multiple of $50) under section 135(b)(2)(C).

SEC. 4. EFFECTIVE DATE

This revenue procedure is applicable for all taxable years beginning in 1991.

SEC. 5. DRAFTING INFORMATION

The principal author of this revenue procedure is John Moran of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Moran on (202) 566-6407 (not a toll-free call).

SEC. 6. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 90-64 is modified.