18 CODIFICATION OF INTERNAL REVENUE LAWS (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 DEFINITIONS.- For the purposes of this sec- tion- (A) "Earned income" means wages, salaries, professional fees, and other amounts received as compensation for personal 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 distribution 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 in- come, 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. (b) CREDITS FOR BOTH NORMAL TAX AND SURTAx. -There shall be allowed for the purposes of the normal tax and the surtax the follow- ing credits against net income: (1) PERSONAL. EXEMPTION. - - In the case of a single person or a marrie(d person not living with husband or wife, a personal exemp- tion of $1,000; or in the case of the head of a family or a married person living with husband or wife, a personal exemption of $2,500. A husband and wile living together shall receive but one personal exemption. The amount of such personal exemption shall be $2,500. If such husband and wife make separate returns, the personal exemption may be taken by either or divided between them. (2) CREDIT FOR DEPENDENTS. - $400 for each person (other than husband or wife) dependent upon and receiving his chief support from the taxpayer if such dependent person is under eighteen years of age or is incapable of self-support because mentally or physically defective. (3) CHANGE OF STATUS.-If the status of the taxpayer, insofar as it affects the personal exemption or credit for dependents, changes during the taxable year, the personal exemption and credit shall be apportioned, under rules and regulations prescribed by the Commissioner with the approval of the Secretary, in accordance with the number of months before and after such change. For the purpose of such apportionment a fractional part of a month shall be disregarded unless it amounts to more than half a month in which case it shall be considered as a month. SEC. 26. CREDITS OF CORPORATIONS. In the case of a corporation the following credits shall be allowed to the extent provided in the various sections imposing tax- (a) INTEREST ON OBLIGATIONS OF THE, UNITED STATES AND ITS INSTRUMENTALITIES. -T he amount received as interest upon obliga- tions of the United States or of corporations organized under Act
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