HR 1190 IH

To amend the Internal Revenue Code of 1986 to permit a husband and wife to file a combined return to which separate tax rates apply.

March 22, 2001

Mr. MATHESON introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to permit a husband and wife to file a combined return to which separate tax rates apply.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Marriage Penalty Relief Act'.

SEC. 2. COMBINED RETURN TO WHICH UNMARRIED RATES APPLY.

(a) IN GENERAL- Subpart B of part II of subchapter A of chapter 61 of the Internal Revenue Code of 1986 (relating to income tax returns) is amended by inserting after section 6013 the following new section:

`SEC. 6013A. COMBINED RETURN WITH SEPARATE RATES.

`(a) GENERAL RULE- A husband and wife may make a combined return of income taxes under subtitle A under which--

`(1) a separate taxable income is determined for each spouse by applying the rules provided in this section, and

`(2) the tax imposed by section 1 is the aggregate amount resulting from applying the separate rates set forth in section 1(c) to each such taxable income.

`(b) TREATMENT OF INCOME- For purposes of this section--

`(1) earned income (within the meaning of section 911(d)), and any income received as a pension or annuity which arises from an employer-employee relationship, shall be treated as the income of the spouse who rendered the services,

`(2) income from property shall be divided between the spouses in accordance with their respective ownership rights in such property (equally in the case of property held jointly by the spouses), and

`(3) any exclusion from income shall be allowable to the spouse with respect to whom the income would be otherwise includible.

`(c) TREATMENT OF DEDUCTIONS- For purposes of this section--

`(1) except as otherwise provided in this subsection, the deductions described in section 62(a) shall be allowed to the spouse treated as having the income to which such deductions relate,

`(2) the deductions allowable by section 151(b) (relating to personal exemptions for taxpayer and spouse) shall be determined by allocating 1 personal exemption to each spouse,

`(3) section 63 shall be applied as if such spouses were not married, except that the election whether or not to itemize deductions shall be made jointly by both spouses and apply to each, and

`(4) each spouse's share of all other deductions shall be determined by multiplying the aggregate amount thereof by the fraction--

`(A) the numerator of which is such spouse's gross income, and

`(B) the denominator of which is the combined gross incomes of the 2 spouses.

Any fraction determined under paragraph (4) shall be rounded to the nearest percentage point.

`(d) TREATMENT OF CREDITS- For purposes of this section--

`(1) IN GENERAL- Except as provided in paragraph (2), each spouse's share of credits allowed to both spouses shall be determined by multiplying the aggregate amount of the credits by the fraction determined under subsection (c)(4).

`(2) EARNED INCOME CREDIT- The earned income credit under section 32 shall be determined as if each spouse were a separate taxpayer, except that--

`(A) the earned income and the modified adjusted gross income of each spouse shall be determined under the rules of subsections (b), (c), and (e), and

`(B) qualifying children shall be allocated between spouses proportionate to the earned income of each spouse (rounded to the nearest whole number).

`(e) SPECIAL RULES REGARDING INCOME LIMITATIONS-

`(1) EXCLUSIONS AND DEDUCTIONS- For purposes of making a determination under subsection (b) or (c), any eligibility limitation with respect to each spouse shall be determined by taking into account the limitation applicable to a single individual.

`(2) CREDITS- For purposes of making a determination under subsection (d)(1), in no event shall an eligibility limitation for any credit allowable to both spouses be less than twice such limitation applicable to a single individual.

`(f) SPECIAL RULES FOR ALTERNATIVE MINIMUM TAX- If a husband and wife elect the application of this section--

`(1) the tax imposed by section 55 shall be computed separately for each spouse, and

`(2) for purposes of applying section 55--

`(A) the rules under this section for allocating items of income, deduction, and credit shall apply, and

`(B) the exemption amount for each spouse shall be the amount determined under section 55(d)(1)(B).

`(g) TREATMENT AS JOINT RETURN- Except as otherwise provided in this section or in the regulations prescribed hereunder, for purposes of this title (other than

sections 1 and 63(c)) a combined return under this section shall be treated as a joint return.

`(h) PHASE-IN OF BENEFIT-

`(1) IN GENERAL- In the case of any taxable year beginning before January 1, 2004, the tax imposed by section 1 or 55 shall in no event be less than the sum of--

`(A) the tax determined after the application of this section, plus

`(B) the applicable percentage of the excess of--

`(i) the tax determined without the application of this section, over

`(ii) the amount determined under subparagraph (A).

`(2) APPLICABLE PERCENTAGE- For purposes of paragraph (1), the applicable percentage shall be determined in accordance with the following table:

50

10.

`(i) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this section.'.

(b) UNMARRIED RATE MADE APPLICABLE- So much of subsection (c) of section 1 of the Internal Revenue Code of 1986 as precedes the table is amended to read as follows:

`(c) SEPARATE OR UNMARRIED RETURN RATE- There is hereby imposed on the taxable income of every individual (other than a married individual (as defined in section 7703) filing a return which is not a combined return under section 6013A, a surviving spouse as defined in section 2(a), or a head of household as defined in section 2(b)) a tax determined in accordance with the following table:'.

(c) PENALTY FOR SUBSTANTIAL UNDERSTATEMENT OF INCOME FROM PROPERTY- Section 6662 of the Internal Revenue Code of 1986 (relating to imposition of accuracy-related penalty) is amended--

(1) by adding at the end of subsection (b) the following:

`(6) Any substantial understatement of income from property under section 6013A.', and

(2) by adding at the end the following new subsection:

`(i) SUBSTANTIAL UNDERSTATEMENT OF INCOME FROM PROPERTY UNDER SECTION 6013A- For purposes of this section, there is a substantial understatement of income from property under section 6013A if--

`(1) the spouses electing the treatment of such section for any taxable year transfer property from 1 spouse to the other spouse in such year,

`(2) such transfer results in reduced tax liability under such section, and

`(3) the significant purpose of such transfer is the avoidance or evasion of Federal income tax.'.

(d) PROTECTION OF SOCIAL SECURITY AND MEDICARE TRUST FUNDS-

(1) IN GENERAL- Nothing in this section shall be construed to alter or amend the Social Security Act (or any regulation promulgated under that Act).

(2) TRANSFERS-

(A) ESTIMATE OF SECRETARY- The Secretary of the Treasury shall annually estimate the impact that the enactment of this section has on the income and balances of the trust funds established under sections 201 and 1817 of the Social Security Act (42 U.S.C. 401 and 1395i).

(B) TRANSFER OF FUNDS- If, under subparagraph (A), the Secretary of the Treasury estimates that the enactment of this section has a negative impact on the income and balances of such trust funds, the Secretary shall transfer, not less frequently than quarterly, from the general revenues of the Federal Government an amount sufficient so as to ensure that the income and balances of such trust funds are not reduced as a result of the enactment of this section.

(e) CLERICAL AMENDMENT- The table of sections for subpart B of part II of subchapter A of chapter 61 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 6013 the following:

`Sec. 6013A. Combined return with separate rates.'.

(f) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

END